Wednesday, 26 December 2012

China's Innovative Pharma Industry: What the Latest Set of 5-year Plans means for this sector



It is China month here at Bioassociate, and in our previous post on China we covered some of the new initiatives filed in the latest set of 5-year plans aimed at making China a competitor in the originator pharma space.

One such initiative has been the direction of foreign investment towards niches which the government has deemed "innovative". Needless to mention, pharma and biotech are high priority on the list of said niches. 

Another issue which the government has prioritized (for very obvious reasons) is the intellectual property protection situation in the country. Historically, China has been one of the most notorious violators in the IP space, but perhaps all of that is about to change over the next decade. 



Direction of Foreign Investment


The Chinese government has specified rules on the direction of foreign investment in order to nurture certain priority sectors and to restrict investment in others. China’s foreign investment policy is outlined in the Regulations for Guiding the Direction of Foreign Investment, which essentially classifies foreign investment into one of four classes: encouraged projects, permitted projects, restricted projects and prohibited projects.

As of 2009, investment in innovative pharma falls under the category of encouraged projects, specifically the production of raw pharmaceuticals which are under patent, those which are granted administrative protection in China, and products which use new technologies. Investment in generic APIs and traditional Chinese medicines is currently restricted, in order to direct investment towards the innovative sector.

In a step to improve investment opportunities for its innovative industries, the Chinese government launched ChiNext on the Shenzhen Stock Exchange—China’s “NASDAQ”—in 2009, paying particular attention to innovative enterprises and supporting venture entities.  ChiNext is expected to play a crucial role in innovation by providing an important exit alternative for many start-ups over the coming years. The independent exchange caters to the high-growth, high-tech sector, and the majority of its 354 listed companies are SMEs with a combined market value of roughly US$ 118 billion.  Currently, 24 companies are listed in the Pharmaceutical Industry on the ChiNext, 9 of which were listed in the last year (see table 1).



Table 1. 24 Pharmaceutical companies listed on the ChiNext (as of Oct. 2012)
  1. Ticker
    Company Name
    Listing Date
    Market Cap. (CNY bn.)
    300006
    CHONGQING LUMMY
    30/10/2009
    3.37
    300009
    ANHUI ANKE BIOTECHNOLOGY
    30/10/2009
    2.37
    300016
    BEILU PHARMA
    30/10/2009
    2.05
    300026
    CHASE SUN PHARM.
    30/10/2009
    7.55
    300039
    SHANGHAI KAIBAO
    08/01/2010
    6.50
    300049
    INNER MONGOLIA FREE MEDICAL TECH.
    20/01/2010
    1.59
    300086
    HAINAN HONZ
    26/05/2010
    2.65
    300110
    QINGDAO HUAREN PHARM.
    25/08/2010
    3.09
    300119
    TIANJIN RINGPU BIOTECH.
    17/09/2010
    3.28
    300122
    CHONGQING ZHIFEI-BIOLOGICAL PROD.
    28/09/2010
    12.6
    300138
    CHENGUANG BIOTECH
    05/11/2010
    1.67
    300142
    WALVAX BIOTECH
    12/11/2010
    6.73
    300147
    XIANGXUE PHARM.
    15/12/2010
    3.55
    300158
    SHANXI ZHENDONG PHARM
    07/01/2011
    2.74
    300181
    ZHEJIANG JOLLY PHARM
    22/02/2011
    2.02
    300194
    CHONGQING FUAN PHARM
    22/03/2011
    2.66
    300199
    HYBIO PHARM
    07/04/2011
    3.10
    300204
    STAIDSON BIOPHARM
    15/04/2011
    6.24
    300239
    BAOTOU DONGBAO BIOTECH
    06/07/2011
    1.80
    300254
    SHANGXI C&Y PHARMACEUTICAL
    19/08/2011
    1.16
    300255
    HEBEI CHANGSHAN BIOCHEM.
    19/08/2011
    2.17
    300267
    HUNAN ER-KANG PHARM
    27/09/2011
    4.33
    300289
    BEIJING LEADMAN BIOCHEM
    16/02/2012
    3.52

Note: There is substantial discrepancy between Market Cap values contained in the ChiNext company index found on the official Shenzhen Stock Exchange website, and values found on leading financial data websites. The official ChiNext company index can be found here: http://www.szse.cn/main/en/marketdata/sinformation/index.shtml?CATALOGID=1693&TABKEY=tab4

Intellectual Property Protection

Historically, China has had a skeptical approach towards IP protection, as it was viewed as a hindrance to the country’s imitation- and manufacturing-driven economy. Before 1992, patent protection was virtually non-existent, and between 1992 and 2008 pharmaceutical patents could essentially be violated on a “me-too” basis, where minor structural differences from existing drugs would suffice for marketing approval. In 2008 China became the newest entrant to the intellectual property arena, having finally adopted comprehensive patent protection regulations. Since then, the protection system strengthened significantly, albeit not sufficiently, and, despite the new initiatives, the IP protection arena remains in need of improvement. Current regulations still exclude IP protection of medical treatments, which encompass drug delivery, medical devices and personalized medicine.


Along with remaining regulatory concerns and loopholes, IP implementation is a pressing issue, particularly due to lack of adequate enforcement procedures in place, and due to insufficient numbers of enforcement authorities throughout the country whose pharmaceutical industry is highly geographically fragmented. In 2009, US businesses lost a colossal US$ 48 billion in sales, royalties and licensing fees due to patent infringement by Chinese manufacturers. 


In a recent move to act on this issue, the Supreme People’s Court of China (SPC) has set up two judicial IP protection bodies to act on behalf of the innovative pharmaceutical industry. The government is additionally making an effort to engage with industry representatives and foreign authorities in order to progress necessary amendments in the IP system. A positive increase in numbers of IPR cases in recent years showcases the government’s efforts, and, because the government is able to draw on established legal environments, it is a matter of time before a sufficiently operational IP protection system is in place. 

China’s strengthening IP protection regulations will certainly be an addition to the plethora of factors which will serve to buttress the innovative pharma industry over the next decade.