7 January 2021 -
medtech-INSIDE – financial column, part 3: “Medtech in transition: Approval procedures in China”
With a population of around 1.4 billion, the People’s Republic of China is an enormously attractive market for medtech and life-science products. For foreign firms, this presents not only great opportunities but risks as well.
By: Dr André Zimmermann, partner at Tübingen-based industry investor SHS. He has developed global connections in the medical technology sector as a business development expert.
China exerts a nearly magical appeal for many European companies across a wide range of sectors. This is because both the sheer size of this market and the dynamics of growth in the Chinese economy are impressive. This is particularly true for the field of medical technology. Many European manufacturers of medtech, life-science and healthcare products want to enter this market as quickly as they can, and with as little bureaucracy as possible. But is that even possible?
The market volume for medtech products in China doubled over the past five years and stood at nearly USD 90 billion in 2019. Experts forecast above-average growth over the next few years as well. For German medtech firms, the majority of them classic medium-sized companies, China already ranks in second place in terms of export volumes, directly behind the USA.
The rocky road to approval
No wonder, then, that more and more companies are devoting considerable thought to seeking approval of their medtech or life-science products in China. Caution is advised, however: Even in China, not everything that glitters is gold, and the path to approval is strewn with plenty of uncertainties and pitfalls. For example, the Chinese government is fundamentally determined to cut hospital outlays for healthcare products by enacting mandatory tenders (volume-based procurement – VBP). This is a Chinese strategy that has emerged in the first approvals procedures. Procurement costs were reduced by between 30 and 50 percent; this came at the expense of the margins of foreign medtech providers – but also, and particularly, the margins of Chinese distributors.
The classic route to approval in China is a half-marathon
The time and costs involved in obtaining approval for a medtech product in China have a great deal to do with the way the product seeking approval is classified. Firms seeking approval of products of the highest risk level (Class III) should typically expect the procedure to last three to five years until the Chinese approvals authority, the NMPA (National Medical Products Administration), gives its green light. This is a fairly long time indeed. The clinical trials required in China constitute an important time and cost factor in the approval process. This is what makes it advantageous if a company can submit the requested data to the Chinese authorities in some other way, such as by means of ‘real-world’ data from a country to which the product has already been successfully introduced.
The complexities of the approvals process make it crucial for companies to start planning early. Depending on the product involved, it may well make sense to work with an expert to explore alternative and potentially more appealing approval strategies. The importance of this approach can be seen, for example, in the selection of the ‘NMPA Legal Agent’, which is a company’s representative in China with responsibility for contact with the approvals authority NMPA as the contact person on site. Foreign companies are well advised to consider very carefully whether to entrust their Chinese distributor with the sensitive task of product approval, as in this case the distributor receives a great deal of confidential information about the product, and ultimately even the original approval certificate. If the distributor fails to forward this document to its foreign partner, it can secure exclusive distribution rights for China through the back door, as it were. Foreign firms need to bear this and other pitfalls in mind. After all, there are also alternatives. Here are two examples:
A Chinese overtaking lane for innovations?
The NMPA also offers fast-track procedures to firms seeking to introduce important medical innovations to the Chinese market even faster. There are certain products on the so-called ‘exemption list’, for instance, that are not subject to additional clinical studies in China as long as the studies conducted outside of China satisfy the requirements of the regulatory authority. This is something to keep in mind when planning your clinical study in the West. If a foreign manufacturer’s medtech product has already been approved for sale in another country, it may be possible to use ‘real-world’ data in lieu of classical clinical trials in China. This may sound simple, but here, too, the devil is in the details. Having a great deal of experience and understanding of the Chinese situation can be helpful in this regard.
Hong Kong – A shortcut to China?
A relatively new approvals option is the Greater Bay Area initiative. The Greater Bay Area (GBA) is a cluster of 11 metropolises along the south coast of China, including Hong Kong. As a German medtech manufacturer, you can register your product relatively quickly in Hong Kong if you can present CE or FDA approval of the product. This approval includes permission to market the product in the Greater Bay Area, a metropolitan region with more than 70 million inhabitants and an impressive economic size.
The Hong Kong route opens up an opportunity for foreign companies to obtain approval for the entire People’s Republic of China without the need for further clinical trials in China. This is because approval in the Greater Bay Area facilitates collection of the ‘real-world’ data acceptable to the Chinese NMPA. At the same time, the foreign firm can already begin generating sales in the Greater Bay Area.
In the words of a Japanese proverb: ‘If you’re in a hurry, take a detour’. The detour via the Greater Bay Area can thus prove to be a very fast and attractive variation for successful entry into the Chinese medtech and life-science market – as long as this special route is one that has been wholeheartedly established by the Chinese government.