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11 October 2016Asia

Boom and boom in the People’s Republic

In 2014, three specialist intellectual property courts were established in Beijing, Shanghai and Guangzhou.

Within eight months, the courts had received more than 10,000 lawsuits and decided 4,160 cases, according to a press conference by the Supreme People’s Court of China, reported on by Lee and Li Attorneys-at-Law.

James Zhu, partner at law firm JunHe, applauds the progress made by the Chinese courts in the IP arena over the past few years.

He explains that the courts have improved the judicial process while increasing the predictability of their rulings.

“Beijing’s IP court is beginning to use common law approaches, such as the use of precedent when deciding subsequent cases on similar legal issues,” says Zhu.

He adds that the courts now allow government-employed technical investigators to participate in the court hearing process and invite amicus briefs from academics, two benefits to the system.

Ningling Wang, managing partner of law firm Finnegan, Henderson, Farabow, Garrett & Dunner’s Shanghai office, also praises the development of the IP courts, saying the specialist judges are now more experienced in the complexities of IP law.

But it’s not all plain sailing. “A number of valuable patents have been invalidated in China, particularly in the life sciences arena,” she warns.

She claims several patents owned by pharmaceutical companies Eli Lilly and Roche have been invalidated.

And Novartis’s patent on Gleevec (imatinib mesylate) was invalidated earlier this year by the Patent Re-examination Board at China’s State Intellectual Property Office (SIPO), on the ground of lack of inventive step.

Zhu disagrees with Wang’s statement, saying that he doesn’t see a trend of valuable patents being invalidated. He does admit there are challenges to validity from various parties, but that these challenges are “signalling the maturation of the Chinese patent system”.

According to Zhu, some of the most important invalidation cases of 2015 concern life sciences.

He says: “It appears that there are many unsolved legal issues regarding life sciences patents, and SIPO and the courts are working towards providing clearer guidelines on these issues.”

Zhu adds that unlike the mature electronics industry in China, the life sciences arena is still in its early stages.

JunHe is currently involved in a number of freedom-to-operate cases, a trend which Zhu says is being driven by the numerous consolidations and venture capital and investment projects occurring in China as companies seek to understand who owns what and what infringement risks there are.

“Of the 532 M&A deals that had announced terms, more than 60% were of companies domiciled in China, and an astonishing 96% of those deals transpired between Chinese buyers."

“The increasing legal efforts by these companies clearly show that companies and investors are keen to understand the IP landscape in order to mitigate or face the infringement risk,” says Zhu.

He also expects that as more innovative and biologic drugs come onto the market after receiving approval from the Chinese Food and Drug Administration, IP enforcement efforts will continue to increase.

Bigger is better

As Zhu explains, the Chinese mergers and acquisitions (M&A) sector is booming, with a number of high-profile life sciences companies being consolidated in the country.

“We are witnessing unprecedented M&A activity by Chinese life sciences companies, with both domestic and international targets.”

One high-profile acquisition, revealed in December last year, was the purchase of Beijing Jialin Pharmaceutical by Xinjiang Tianshan Wool Tex for RMB 10.7 billion ($1.6 billion).

Wang adds: “Chinese companies are becoming more and more aggressive in M&A activity and the licensing of technology.”

Chinese companies dominated life sciences M&A in the Asia-Pacific region in 2015, accounting for 81%, or $42.9 billion, of all value, according to a report from professional services organisation EY.

“Of the 532 M&A deals that had announced terms, more than 60% were of companies domiciled in China, and an astonishing 96% of those deals transpired between Chinese buyers and sellers,” said the report.

Chinese companies are also looking outwards in terms of licensing, with some attempting to meet the rigorous approval standards of the US Food and Drug Administration and European Medicines Agency.

In 2014, Innovent Biologics revealed plans to be the first Chinese manufacturer of biologic products approved for sale outside China.

One year later, Innovent partnered with Eli Lilly in a $56 million deal, one of the largest collaborations on drug development involving a Chinese biotech company to date. The companies have collaborated to support the development and commercialisation of at least three cancer treatments over the next decade.

It’s clearly no surprise that international companies are setting their sights on China in a bid to develop business and expand operations, while taking advantage of the strong biosimilars market and growing population.

A report from business research firm Visiongain in 2013 listed three Chinese companies—3SBio, Beijing SL Pharmaceutical and Shanghai Fosun Pharmaceutical—among the top ten biosimilar drug manufacturers worldwide, in what was the highest representation of any country.

With top manufacturers, an ageing population and the majority of prescription drugs supplied in China being generic products, it’s a winning combination.

According to professional services firm JLL, sales of medicines may reach $175.8 billion in China by 2020.

A number of international companies are also licensing biosimilars to Chinese drugs producers.

Last year, Germany-based Amp Biosimilars licensed two such products to an unnamed mid-sized Chinese pharmaceutical corporation with a portfolio of more than 50 products.

Marc Hentz, CEO of Amp Biosimilars, said: “By out-licensing to China, we are not only tapping into the potential represented by this rapidly expanding market, we also have the opportunity of forming partnerships with companies in other markets outside China.”

This sentiment appears to be echoed by other life sciences companies that are establishing a footprint in China.

In July this year, Pfizer revealed plans to invest approximately $350 million in developing a global biotechnology centre in China. The aim was to ensure high-quality and affordable local production of biosimilar medicines.

The facility, which will be in the city of Hangzhou, will be Pfizer’s first biotechnology centre in Asia and its third globally. It is expected to be completed in 2018.

“There is an increasing trend of large pharmaceutical companies establishing generic arms. If their patents are invalidated or have expired, the generic arms can fill in the market quickly so there is no gap in production,” Wang adds.

In August, Taiwan-based JHL Biotech opened a biosimilar manufacturing facility in Wuhan, partnering with GE Healthcare to complete the centre in just 18 months. JHL is set to manufacture biosimilars and monoclonal antibodies for late-stage clinical trials and commercial supply.

This is just the beginning: more and more companies may begin to turn their eyes to China’s booming life sciences industry in the future as the drugs market continues to grow, the population ages and the IP system becomes increasingly developed.