HONG KONG and BEIJING – Not just multinational players but domestic Chinese pharmaceutical companies are poised to benefit from China’s promise under a phase one trade deal with the U.S. to better protect intellectual property (IP), even if question marks remain around how the deal will be enforced.

The move is in line with China’s ambition to strengthen IP rights protection and upgrade the approach to innovation of its pharmaceutical and biotech industries.

“The IP aspects of the phase one agreement should benefit IP owners of both the U.S. and China,” Jing He, executive director of ZGC IP Strategy Research Institute, told BioWorld.

“Almost all the measures as agreed are something that China should have or would have adopted for its own interest to protect the intellectual property of Chinese tech companies, brands or content industry,” he said.

Even as the trade talks progressed, China revealed plans for a regulatory framework for stronger IP rights protection.

There have long been concerns over patent infringement by Chinese companies and China’s lax attitude toward the issue. The trade agreement signed by the U.S. and China aims to address those concerns by specifying resolutions and steps forward.

To resolve disputes over patent infringement as quickly as possible, China will give patent holders sufficient time to seek remedies before any allegedly infringing products go to market. The patent holders will be notified that a competitor is seeking marketing approval while the patent is still active.

The trade deal also includes a commitment from China to give patent extensions to compensate for unreasonable delays when applying for patents or marketing approval. Supplemental data will also be accepted to meet patentability criteria for biopharma patent applications in China.

A win-win for all

The IP expert said he believes that the agreement may push China to promptly launch its own patent linkage system and other biopharma IP reforms. Innovation-oriented companies will gain the most out of those pro-IP measures.

“If this is done right, both originators from the U.S. and the new generation of biopharmaceutical firms in China will find much greater certainty and consistency in stronger IP protection, which would give a significant boost to the entire industry,” He said.

He also noted the agreed measures will give more confidence to investors who are highly interested in innovative biotech startups. There has been abundant capital for biotech investment in China, but investors tend to be risk-averse and favor late-stage companies.

“Chinese policy makers might even be surprised by the huge achievements to come out of the China-based biopharmaceutical firms,” he added.

Following the trade deal, which could encourage more foreign innovative drugs in China’s market, competition is expected to become more fierce. Domestic drugmakers that go after those originator drugs could have a lot to worry about.

But He said he believes that a pro-IP legal environment may not be bad news to them at all.

“China has more than 4,000 generics companies. How to produce higher quality generics is a much higher priority,” he said. “After all, the generics industry probably knows that India is never meant to be their role model. The huge potential for the entire health care sector is too big to ignore.”

Under pressure

While a pro-IP environment can be an opportunity to make Chinese pharma companies rethink their strategies and encourage more investment into R&D, biotech experts also feel there is pressure to for them to do just that.

“It will be harder to challenge the patents to declare them invalid from now on, which will make it more difficult to develop just generics,” Kai Sun, an analyst from Shanghai-based Green River Investment, told BioWorld.

“Chinese companies better have a platform that accelerates the development of me-too drugs, or the ability to develop me-better drugs,” he said.

Sun said he believes the way to stay in the market will be to either target generics with very high technical requirements or improve the administration of drugs with known chemical entities.

“Companies that develop me-too drugs must keep an eye on drugs that are newly approved or show promising clinical data, and they must act fast to pump them out. Otherwise, there won't be a market for them," Sun added.

Before the trade deal came around, Chinese generic drugmakers were already facing a landscape that had grown increasingly unfriendly to them. This serves as a further push to squeeze low-end competitors out of the market.

At the same time, to win access to public hospitals that serve some 1.4 billion Chinese citizens, pharmaceutical companies must have launched quality consistency evaluation for their drugs and offer the lowest prices to the Chinese government through a bidding process. As the profits made from generics are shrinking significantly and the requirements for them are higher, low-end players could find themselves displaced from the market.

Over the past few years, China has strived to encourage more biotech innovation with regulatory reforms aimed at accelerating the R&D and approval process for innovative drugs, whether they are foreign imports or homegrown drugs.

The trade agreement, which aims to make China a fairer market, is widely viewed as positive for the development of China’s biotech industry in the long run. But whether and how the agreement will be honored remains an open question.

The IP-related measures in the phase one trade deal are still subject to more detailed work. Additional IP issues, such as data protection for biopharma companies, also need to be addressed in future trade talks.

“If China really honors the phase one deal and both sides can move forward to sign the next one, that implies that not just China’s economy but also its political system might have to become more inclusive,” an analyst from Shenzhen-based venture capital firm Photon Fund told BioWorld. “But at this moment, I don’t think the Chinese government will allow that. I doubt if the promises made in this trade deal will be fully honoured.”

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