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.
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.
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.
