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20 June 2014Asia-Pacific

Emerging opportunities in East Asia

Forecast by information solutions provider IMS Health to be the second, third, and 14th biggest spenders, respectively, in medicine by 2017, and with a combined population of more than 1.5 billion people, China, Japan and South Korea are becoming key markets for the big pharma and biotech companies.

However, as LSIPR found, protection for medicines in the three countries varies widely, as quirks in their national patent systems mean each country has its own way of doing things.

China

While China is the second-largest economy in the world, about half its nationals live in rural areas and it faces a unique set of IP challenges to ensure its population of more than 1.35 billion people have access to medicine.

Countrywide healthcare reforms introduced in 2009 mean that more than 95 percent of the world’s most populous country now has medical insurance, and the establishment of an essential medicines list as part of the reforms has been linked by the World Health Organization to a general strengthening of the country’s drug supply.

"China will overtake Japan as the second biggest pharmaceutical market in the world, with annual spending of between $160 billion and $190 billion."

According to IMS Health, by 2017 China will overtake Japan as the second biggest pharmaceutical market in the world, with annual spending of between $160 billion and $190 billion.

However, as the Chinese medicines market is geared towards generics more than brands, foreign companies entering the country face difficulties.

China does not have a formalised patent linkage system—instead, the China Food and Drug Administration (CFDA) requires that applicants for approval of generic drugs declare they have not infringed any third-party patent rights. Innovator companies seeking to protect their drugs in China are allowed six years of data exclusivity.

Country knowledge

LSIPR spoke to Clement Ngai, a partner at Baker & McKenzie’s Shanghai office.

How has the introduction of the six-year data exclusivity period affected the life sciences industry in China?

It’s been met by huge controversy. Anyone in the industry will tell you that because China has such a narrow definition of the term ‘new chemical entity’, you can never really get the six-year data exclusivity protection.

Without an agreed definition, it is up to the CFDA to interpret what new chemical entity means, as definitions can vary.

It’s a very tricky situation—if your drug is still under data exclusivity protection and you see a generic version coming on to the market, you can’t make a complaint to the authority.

China is a generic market by and large, and has a vested interest in making it easier for generic products to be registered. Rigidly enforcing the data exclusivity period would make it difficult for generics to make it to market.

Have any compulsory licences been issued in China?

Not as far as I know. Given the size of the market, and the associated costs of issuing a compulsory licence, it would be a risky thing to do.

China deals with things differently. For example, for many important drugs, their prices are set by the government, not the manufacturers.

Does China’s patent linkage system favour the originator or generic drug companies?

China has a fairly rudimentary patent linkage system. The law doesn’t actually say how the CFDA should deal with a patent owner who accuses a generic drug application of infringing his patent rights.

Patent linkage remains a concept in the drug registration legislation rather than something practical that can easily be enforced.

The two different administrative bodies, the CFDA, which is concerned with drug approval, and SIPO, the patent office, which is in charge of patent registration, do not talk to each other. Therefore, the CFDA has no means of knowing whether the contents of a drug application are true or not.

The drug registration system favours the registration of generic drugs.

What challenges might innovator drug companies from outside China face doing business in the country?

The biggest challenge is regulatory approval, or the registration of the product itself. Companies seeking to have their products approved in China have to go through a lengthy drug registration process, which on average can take anywhere between three and five years.

I see this as the biggest challenge, because if your products are not registered, you cannot market your products in China.

Japan

Japan’s $64.5 billion-a-year pharmaceutical market consists largely of branded products. However, with a rapidly ageing demographic (by 2050, 40 percent of the population will be 65 and over), the government is pressing for greater control of healthcare spending, presenting opportunities for generic drug makers.

While there is no data exclusivity mechanism in Japan, the ‘re-examination’ period that every new drug must undergo to determine safety and efficacy has a similar effect.

The re-examination period applies both to new chemical entities and to previously approved drugs that have received approval for new clinical indications, lasting eight years for the former and four years for the latter.

"if a drug company has filed a drug application in Japan, it would have also filed in the US, EU, China and South Korea."

A patent term can be extended by up to five years to compensate for marketing time lost during product development and government approval and, unlike in the US, more than one patent per product may be extended.

Japan does not have an established patent linkage system but the Ministry of Health, Labour and Welfare will not approve any generic drugs that cannot be manufactured due to the existence of patent rights.

Country knowledge

LSIPR spoke to John Dean, a partner and Japan expert at Withers & Rogers.

Is Japan becoming a more attractive jurisdiction for generic drug makers that wish to do business in the country?

Yes. Traditionally Japan has been quite a tough market for generics, partly because of the Japanese people’s loyalty to brands. But for the last ten or so years the Japanese government has been increasing the amount of generic medicines in the health system in an effort to cut costs.

The generic companies have not had a very good profile in Japan, but recently we’ve seen examples of Japanese companies taking on a generics arm.

For example, Daiichi Sankyo took over Ranbaxy in India some years ago, which parallels what Novartis has done with its generics arm, Sandoz.

Is the re-examination period as effective as a mechanism for data exclusivity?

Not really. Re-examination is a chance for third parties to attack patents, which tends to happen way before the end of a patent lifetime.

Generics have tended to attack patents towards the end of the patent’s lifetime, whereas the re-examination or opposition process happens as the patent is granted, so much earlier in the product’s life cycle.

What was the impetus behind introducing the Quality Policy on Patent Examination in Japan?

If a patent office does a good job of examining a patent application, it takes the burden off the courts to assess the validity of patents downstream.

The Japan Patent Office (JPO) says that it wants to grant robust patents that will not be invalidated afterwards. It already does a good job of seeing whether a patent should be granted; it doesn’t just ‘rubber stamp’.

The JPO has always been good at examining patents, but it has an eye on quality, and on achieving very high standards of examination so that there’s little need for invalidity cases later on, which can be expensive.

In recent years, there has been a much greater exchange of information between patent offices, so if a drug company has filed a drug application in Japan, it would have also filed in the US, EU, China and South Korea, and so on. This exchange of information makes the offices far more efficient.

South Korea

Reclassifying it as a “developed” market in 2010, IMS Health predicts South Korea will be the 14th biggest pharmaceutical market in terms of spending by 2017.

On March 15, 2012, South Korea signed a free trade agreement with the US, introducing a patent linkage system similar to that under the US Hatch-Waxman Act.

"A generic company, without an imminent threat of infringement allegation, may challenge the validity of a patent covering a drug at any time in Korea."

The system will be implemented in two stages: the first provides that brand pharmaceutical companies apply for patent listings related to their products, while the second, due to come into effect on March 15, 2015, will introduce a stay mechanism to prevent generic product sales for a certain time period.

The patent litigation system is bifurcated in South Korea, so infringement actions and validity actions are filed separately. The courts rarely issue preliminary injunctions, preferring to grant damages for patent infringement.

Country knowledge

LSIPRspoke to Eun-Sun Choi and H. Joon Chung, attorneys at Kim & Chang in Seoul.

How will the new patent linkage system affect patent disputes and strategies?

More generic companies will tend to file legal actions before filing generic approval applications in order to obtain first generic exclusivity. A generic company, without an imminent threat of infringement allegation, may challenge the validity of a patent covering a drug at any time in Korea.

The standing requirement for the challenger is minimal—mere proof that the challenger engages in pharmaceutical activities is sufficient. Thus, generic drug companies are likely to challenge a listed patent well in advance of the filing date of its generic application. In case of early patent skirmishes, the parties may likewise be compelled to discuss settlement sooner as well.

Are there any provisions for patent term extension (PTE) on pharmaceutical products?

Yes. The term of a patent relating to an approved medicinal product may be extended, if the patent was unable to be practised after grant due to pharmaceutical regulatory approval requirements.

In Korea, PTE is designed to compensate for the non-working period of a patent after grant due to regulatory approval processes, available even for one single day. However, if the regulatory approval date precedes the patent grant, no PTE is available.

The length of the restoration depends on the regulatory review duration after the patent grant, with a maximum cap of five years. While under US law the total patent life of the product cannot exceed 14 years from the product’s approval date, no such provision exists in Korea.

What about data exclusivity?

Korea technically does not have a data exclusivity system. However, it provides original drug developers with de facto protection for certain pharmaceutical product through its drug re-examination system under the Korean Pharmaceutical Affairs Act. Certain products are designated by the Ministry of Food and Drug Safety to be re-examined for a period of four or six years after the first approval.

During the re-examination period, any generic applicant must demonstrate efficacy and safety of its drug by submitting data that are
(a) independently generated (absent permission by the original approval holder to use its data); and
(b) equivalent to or exceeding the scope of the original approval holder’s data. Due to the general difficulty for generics to meet such requirements, the drug re-examination system effectively operates to provide original approval holders with  de facto data protection in Korea.