Healthy outcome?

China’s potential extension of drug patent terms is a win-win for both the country and big pharma, argues Tim Jackson

The State Council (China’s Cabinet) presided over by Premier Li Keqiang on 12 April 2018 issued a decision that may have significant consequences for the pharmaceutical industry in China.[1]

The State Council met to determine ways to make medical services better meet patients’ needs and improve their efficiency and convenience.[2] Essentially, the State Council was looking at ways to improve access to commonly used drugs as well as encouraging import of innovative products to benefit the local consumer. The decision shows the impact of two major Chinese policy directives: Made in China 2025 and Healthy China 2030.

The State Council’s decision broadly referred to the strengthening in protection of intellectual property rights in China, but also to two areas of importance specifically for pharmaceutical companies. The first was the removal of tariffs from common3[3] imported drugs including cancer drugs, cancer alkaloidbased drugs, and imported traditional Chinese medicines on 1 May 2018. The second was a potential five-year extension to patent terms for pharmaceutical patents for innovative medicine.

The State Council’s Made in China 2025 policy (MiC 2025) is intended to make China’s manufacturing base more innovative and globally competitive, and to move China’s manufacturing profile from a “made in China” position to a “created in China” position. The policy itself was developed, at least in part, in response to a slowing in the Chinese manufacturing economy in recent years, resulting from low-wage competition from neighbouring South East Asian countries.

Public health plan

Clearly, China does not intend to restrict itself to being a low-wage economy, a perfectly understandable intention for the world’s second largest economic power. The policy is partly a reflection and response to Germany’s “Industrie 4.0” initiative and the global competition it has created. While the policy has proved controversial, China does not want to be left behind in this economic race, especially as it is starting some way behind its competitors.

The Healthy China 2030 policy makes public health a precondition for all future economic and social development, and this powerful policy statement will have a broad impact on China’s decision making. Prior to the development of this policy, President Xi gave a speech at the 2016 “National Health and Wellness Conference” where he stated that, “health is the incumbent requirement for all-around development of humankind and the fundamental condition for socio-economic development; people’s health and longevity is the key symbol of national prosperity and rejuvenation, and the common wish of all people across China.”[4]

The removal of tariffs from common imported drugs including cancer drugs, cancer alkaloid-based drugs, and imported traditional Chinese medicines has already occurred. The change, welcomed by those exporting commonly imported drugs to China, also allows China to reduce the cost of those drugs internally, thus improving access to them. Ultimately, this follows the Healthy China 2030 policy and is a win-win result for both sides. As no timeframes have been stated for the extension of patent term and since it would require changes in current Chinese patent law, it will likely take some time to introduce. It is also likely to be a bargaining point in the trade discussions with the US. This is becoming a standard concession as the patent term extension usually only applies to patents filed after the new legislation is in force, which allows 20 years for businesses and consumers to adjust.

Critically however, the State Council’s decision intends to allow the extension to apply to existing pharmaceutical patents, on the condition that the patent owner applies for a manufacturing licence in China and overseas. If the patented product is only imported into China, the extension may not be available.

Knowledge transfer

The MiC 2025 policy has 10 priority sectors, one of which is biopharmaceuticals,5[5] and the proposed patent term extension condition appears to fit with the policy initiative in that sector. Unless a company is already manufacturing pharmaceuticals in China, it will take time to meet the requirement for a manufacturing licence in China, so there is an inherent delay for some. In addition, issues of knowledge transfer often arise when manufacturing products in other countries, as local staff will need to be trained to GMP standards to produce the products under the manufacturing licence. This is not unique to China and will be well known to pharmaceutical companies who will have existing procedures to mitigate such risks.

However, while knowledge transfer issues may be behind the recent trade dispute between China and the US, China’s extension of term condition effectively asks pharmaceutical patent owners to trade an extension of patent term for knowledge transfer, which would be an inherent risk of producing the product in China. As the products to which the patent term extension applies will almost certainly be successful and profitable, that trade from the patent owner’s perspective may be more than acceptable. From China’s perspective, the biopharmaceuticals sector will get a stimulus that would otherwise be unattainable. Again, this would meet the MiC 2025 policy and bring potential benefits for both sides.

Innovative medicine

An interesting issue is the meaning of “innovative medicine”. Ordinarily extensions of patent term would be expected to be for a defined pharmaceutical compound only and would exclude processes and compositions. Phrases such as “a pharmaceutical product per se” are often used. The China National Formulary (CNF) for reimbursable drug use, also known as the National Reimbursement Drug List (NRDL), is reported to have recently created a working definition of “innovative medicines” as being “…of clearly proven clinical outcomes for urgent unmet medical needs, but expensive.”[6] This focuses more on the needs of the people than the usual concerns over the economic downside from extended monopolies. Seen from the perspective of both China’s MiC 2025 and Health 2030 policies, there is a chance that the definition will be wider. Allowing a wider range of patented products to qualify for the extension will further increase stimulus in the biopharmaceutical sector as well as benefiting the Chinese consumer in the longer term.

China is intent on improving the health care of its citizens as well as its position in the world economy and is clearly willing to take pragmatic steps to achieve both ambitions. While the understandable intention is to benefit China, there appears to be a willingness to accept the potential benefits to the economies of other countries. As such, anyone looking to access the Chinese health market in any area should take steps to understand the impact that both the Healthy China 2030 and the MiC 2025 policies could have on business opportunities.

 

This article was first published in Intellectual Property Magazine in July 2018.

[1] http://www.xinhuanet.com/politics/leaders/2018-04/12/c_1122674781.htm

[2] http://usa.chinadaily.com.cn/a/201804/16/WS5ad3dafaa3105cdcf65185a2.html

[3] https://www.ispor.org/VIHRI/commentary_health-care_China_2030.pdf

[4] http://www.rdpac.org/UpLoad/UpLoadFileDir/201801/12/201801121518375776.pdf

[5] Advanced marine equipment and high-tech vessels; advanced rail and equipment; agricultural machinery and technology; aviation and aerospace equipment; biopharmaceuticals and high-end medical equipment; integrated circuits and new generation information technology; power equipment and technology; high-end manufacturing control machinery and robotics; low and new-energy vehicles; new materials.

[6] https://www.sciencedirect.com/science/article/pii/S2212109918300463