On September 3, 2024, the Yunnan Provincial Drug Administration issued the "Notice on Further Strengthening the Supervision and Management of Drug Entrusted Production", which clearly stated: "Applications without a drug GMP compliance inspection notice and consent to entrusted production issued by the provincial drug regulatory department where the entrusted enterprise is located will not be accepted; in principle, applications for long-term unproduced varieties that do not meet the conditions for resuming production will not be accepted." This means that if the "zombie approval" that has not been produced for a long time is not resumed at the original factory, it will be difficult for the transferee to obtain a B certificate, that is, Yunnan enterprises basically cannot buy approvals that have not been produced for a long time. It seems that the regulatory authorities are worried about the resumption of sales of products whose generic names have not been produced for a long time and have no clinical efficacy data. Moreover, there is a tendency in the policy to "one size fits all" not to resume production and sales of such products.

For drugs that have been discontinued for a long time (the last batch of marketed products has expired), if they are to be resumed in the form of commissioned production, they need to comply with the relevant requirements for the resumption of production of long-term discontinued drugs for drug re-registration, and report to the provincial drug supervision and administration department where the entrusting party is located for review and confirmation before they can be processed. It is expected that the technology transfer of exclusive "zombie approvals" will be difficult in the future, and the transferor will most likely need to resume production before the transfer can be completed. There are many reasons why "zombie approvals" cannot resume production - including but not limited to problems with the production process, inability to check quality standards, high production costs, and withdrawal of production lines.

Problems with the production process, inability to check quality standards, and high production costs all require technical research, which must be solved by the transferor or the transferee, or by a third party. If the production line is withdrawn, it needs to be produced at the transferee or a new production site approved by the transferee, and the new production site meets the quality standards of both the transferor and the transferee.

It is worth noting that if the production line to be entrusted for production has not been in production for a long time (more than 1 year for sterile production lines and more than 3 years for other types of production lines), the entrusted enterprise is likely to need to carry out pre-resumption confirmation and verification, and apply to the provincial drug supervision and administration department for drug GMP compliance inspection. Only after passing the inspection can it accept entrusted production.

Some companies also think that "zombie approvals" are still worth investing in. Because although the consistency evaluation policy requires that "generic drugs including basic drug varieties approved for marketing before the implementation of the new registration classification of chemical drugs, after the first variety passes the consistency evaluation, the same varieties of other drug manufacturers should, in principle, complete the consistency evaluation within 3 years. If they are not completed within the time limit, they will not be re-registered", in fact, the provincial drug administration bureaus are not active in the implementation of refusal to re-register, and it is inferred that the possibility of "zombie approvals" not being re-registered is not great.

Since the implementation of the drug marketing authorization holder system in China, the transaction of approvals has become increasingly active. However, since October 2023, the number of successful applications for approval transfers has dropped sharply, mainly because the drug production license (i.e. B license, referred to as "B license", the same below) of the entrusted drug marketing authorization holder has been strictly handled. According to the annex "Interpretation of the Policy of the "Administrative Measures for Post-Marketing Changes of Drugs (Trial)" to the "Announcement of the National Medical Products Administration on the Issuance of the "Administrative Measures for Post-Marketing Changes of Drugs (Trial)" (No. 8 of 2021)" issued in January 2021:

To apply for a change in the holder of a drug produced in China, the transferee shall first apply to the provincial-level drug regulatory department of the place where it is located for the issuance of a "Drug Production License" for the corresponding production scope. After approval, in accordance with the provisions of the "Drug Administration Law", the transferee shall submit a supplementary application for the change of the holder to the Drug Review Center. If only the holder of the drug is changed, it is an approval matter that does not require technical review. Therefore, the applicant shall provide a commitment that the production site, prescription, production process, quality standards, etc. of the drug will not change. Because the transfer of approval documents must apply for a B license.

According to the Policy Interpretation of the Measures for the Administration of Post-Marketing Changes of Drugs (Trial), there is no requirement for a compliance inspection report to be submitted for the B license application. "During the transfer of drugs, if only the holder is changed and other matters such as the production site and production process have not changed, the changed holder and the drug manufacturer shall meet the compliance inspection requirements of the Good Manufacturing Practice for Drugs. The transferred drugs can only be marketed after passing the compliance inspection of the Good Manufacturing Practice for Drugs and meeting the product release requirements." In October 2023, the Announcement of the State Drug Administration on Strengthening the Supervision and Management of Entrusted Production by Drug Marketing Authorization Holders (No. 132 of 2023) required that before applying for the B license, it is necessary to "strictly review the drug GMP compliance inspection notice and the opinion on the entrusted production issued by the provincial drug regulatory department where the entrusted production enterprise is located." This increases the difficulty of transferring approval documents, because most manufacturers in the past have not conducted GMP compliance inspections and basically cannot issue GMP compliance inspection reports.

The transferor needs to obtain a GMP compliance inspection report before the transfer can be made, which means that the transferee needs to spend at least 3 months longer to obtain the B license than before the strictness. The approval of products that have not been produced for a long time is basically stuck. Recently, it is reported that the B license may be further tightened. Previously, only narcotic drugs, psychotropic drugs, toxic drugs for medical use, and pharmaceutical precursor chemicals were not allowed to be commissioned for production. The new regulations are expected to be mainly self-produced in principle except for Class 1 innovative drugs, clinically urgently needed drugs determined by the health and health authorities, urgently needed drugs for responding to public health emergencies, and drugs for the treatment of rare diseases.

If the B license is further tightened, the difficulty of transferring the approval will increase further. If the drug approval is an asset, then the approval transaction is an asset delivery, and there is no need to set up a "B license". However, if the drug approval is an asset with technical attributes, the asset handover requires technology transfer, and the requirement of "B license" qualifications will help protect the drug approval and both parties to the transaction.

GMP compliance reports need to be approved by provincial bureaus. GMP compliance reports will limit the acquisition of B licenses, especially for marketing companies that are expected to be very difficult to transform into B licenses. If B licenses cannot be transferred, they cannot be transferred. The transaction of approvals is limited by the risk of policy uncertainty. If the "zombie approval" has clinically urgent value, it is expected that there will be sales companies willing to invest in technology development with the approval company, activate the "zombie approval", and obtain the sales rights of the "zombie approval". In the short term, the transfer of approvals is expected to be hot for products that have mature technology and can be commercialized and have passed the consistency evaluation.

However, due to the fierce competition in the ninth and tenth batches of centralized procurement, the commercialization of generic drugs has become more difficult. Companies/individuals who have previously invested in generic drugs have not obtained good returns. The enthusiasm for purchasing generic drug approvals has declined, or the transferor is required to sell at a lower price, or to cooperate in the form of sales rights to reduce transaction costs. Some products with high production costs and extremely competitive markets and prices are not expected to be favored.

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