China Updates Medical Device Regulations

IHS Global Insight

February 17, 2014

The China Food and Drug Administration (CFDA) last week issued a long-awaited major update to the regulations in place for the registration and management of medical devices in China. The State Council approved the Medical Device Supervision and Regulation (revised draft) on Feb. 12, which represents the first update to the existing guidelines since 2000.

Focus on safety and innovation

The draft, which is expected to be implemented later this year, is made up of eight chapters and 80 clauses, an expansion on the existing guidelines' eight chapters and 48 terms, with expanded rules governing product registration, manufacturing, and monitoring and supervision of use. The classification of devices relative to risk level has been tweaked, with raised registration requirements for higher-risk devices and simplified procedures for lower-risk devices. The new rules add a number of clauses related to improving the safety and efficacy of devices used in China, with a stronger and broader range of penalties for firms found to be in breach of regulations. As well as safety, the guidelines are focused on encouraging innovation within China's domestic medical device manufacturers.

Outlook and implications

The CFDA?which was last year upgraded to ministerial status?has been working on updating the medical device guidelines during the last 12 months, with the sector having received less regulatory attention in comparison to pharmaceuticals. As well as establishing a fast-track channel for innovative products, the CFDA last month issued updated Good Supply Practice guidelines for medical devices.

The changes are in anticipation of further expansion of China's medical device market: the last 10 years have seen stunning growth in the sector from CNY17.9 billion ($2.6 billion) in total revenue in 2001, to CNY200 billion ($29.25 billion) in 2013, with forecasts predicting the market will reach CNY340 billion in 2015 (source: Bharat Book Bureau). There remains strong potential for further growth in the market, as medical devices account for only around 14% of the overall healthcare market in China, versus around 42% on average globally, with upgrades of out-of-date devices across China's hospital infrastructure expected as part of the ongoing health reforms.

Chinese medical device firms have rapidly developed their capabilities in the low- and middle-range segments of the market, and now account for around 50% of sales in China. Consumables and low-end apparatuses are also driving significant exports of medical devices, which grew 9% year on year in 2013 to $19.34 billion (source: China Chamber of Commerce for Imports & Exports of Medicine and Health Products). The government has designated the medical devices sector as a strategic pillar of economic growth, and set a number of targets for the local industry, including developing 200 new patents, 50 to 80 key medical device products, and establishing 10 national engineering technology research centers and labs, supported by significant funding, including a CNY1.5-billion seed fund. While consolidation within China's smaller domestic companies can be expected, its larger players have been looking to expand internationally through acquisitions activity over the last year: Mindray (China) paid $105-million for US ultrasound firm Zonare, while Shanghai Fosun bought Israeli medical laser firm Alma Lasers for $225 million.

Multinational firms are likely to benefit from the new guidelines in terms of more transparency and potentially shorter registration timelines as the CFDA directs more resources to the sector. Nevertheless, the CFDA's focus on stimulating domestic innovation will mean that partnerships and further investments in China are necessary for firms to benefit at the regulatory level.

Last week also saw the publication of guidelines for a fast-track channel for "innovative" medical devices which puts a strong emphasis on the need for local development and registration of intellectual property for a product to be considered as innovative. Multinational medical device manufacturers have already taken the hint and invested heavily in local Chinese R&D bases, with Johnson & Johnson, Covidien, Boston Scientific, Fresenius, and GE (all U.S.) among the firms to have set up local development centers in recent months. There has also been significant acquisitions activity: Medtronic (U.S.) paid $816 million for China Kanghui and $46.6-million for LifeTech Scientific (China) in late 2012 with the intention of using products developed by Kanghui's Chinese R&D team for global markets, a model that is likely to be followed by other firms in future.

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