Time to fulfill China’s promise of IP reform

Guest Commentary: It’s time for China to make good on its 2017 promise for pharmaceutical IP reform

Anthony Chen, Partner, Jones Day and Randall Rader, Founder, The Rader Group

October 9, 2019 1:03 AM UTC

Updated on Oct 10, 2019 at 1:00 AM UTC

Two years ago, on Oct. 8, 2017, the top bodies of the Chinese Communist Party and the Chinese government created a pathway to IP reform that promised to propel the nation into the global innovation ecosystem for pharmaceuticals. But that promise has failed to materialize.

This week, as Chinese and U.S. negotiators reconvene in Washington for yet another round of trade talks, there is an opportunity for China to turn that promise into reality.

By following through on its 2017 commitment to IP reform, the Chinese side would simultaneously deliver a trust-building breakthrough to the U.S. side, and continue the momentum of Chinese innovators who are beginning to create new medicines for patients in China and the world beyond.

The promise

The promise and prospect for improvement came in the 2017 Directive, when China announced changes to its pharmaceutical review and registration system to promote innovation and meet public health challenges.

The Opinion issued by the Central Office of the Chinese Communist Party and the Central Office of the State Council contained 36 reform measures. And it commanded the relevant government departments to implement the reform in a timely fashion.

The Directive specifically listed four improvements for pharmaceutical IP protection:

Proposal 15: Establish a catalog of approved pharmaceutical products - known as Orange Book in the pharmaceutical industry -- and include information about patent protection and regulatory data protection for new drugs.

Proposal 16: Explore establishing a patent linkage system and ask regulators to wait for court decisions on patent disputes before approving generic drugs.

Proposal 17: Provide a pilot program for patent term restoration to compensate for patent life lost to lengthy clinical trials and regulatory review.

Proposal 18: Enhance and implement regulatory data protection for new drugs, rare disease drugs, pediatric drugs, innovative biologics, and generic drug applicants who have successfully challenged a patented pharmaceutical.

The status quo would perpetuate the low water mark for pharmaceutical IP protection since China joined WTO.

Drug discovery players around the world applauded the directive. Importantly, the nascent community of pharmaceutical innovators in China received a big boost from the promise of world-class IP protection for their inventions and investment.

Since the directive, VC investment in China’s drug discovery companies has skyrocketed.

To keep pace, the Hong Kong Stock Exchange changed its listing requirements in 2018 to allow pre-revenue pharmaceutical companies to go public when they have drug candidates in late-stage clinical trials with a strong IP position.

Western pharmaceutical companies have accelerated the pace of introducing their life saving new drugs to China, either directly or by partnering with Chinese companies that license the IP rights of original developers.

Following the directive, China announced it would speed up amending its Drug Administration Law (DAL) and Patent Law. Chinese and Western drug discovery companies were hopeful the four IP protection measures in the 2017 Directive would be included in the new laws.

The reality

These hopes have not been realized in 2019.

The People’s Congress passed its DAL amendment in August, which glaringly omitted any mention of regulatory data protection or patent linkage.

The picture worsened on Sept. 30, when the National Medical Products Administration (NMPA) published for public comment its draft Drug Registration Regulation (DRR) to implement the amended DAL.

The draft DRR removes Article 19 of the current DRR, which requires NMPA to wait for patent expiration before approving generic drugs.

The promise has become a whisper

Apparently, NMPA started implementing the draft DRR before it was made public. With a blind eye to the 2017 Directive, the regulator recently approved generic drugs before the expiration of patents listed in China’s Orange Book protecting Eliquis apixaban from Bristol-Myers Squibb Co. (NYSE:BMS) and Pfizer Inc. (NYSE:PFE); Onglyza saxagliptan from AstraZeneca plc (LSE:AZN; NYSE:AZN), and Xarelto rivaroxaban from Bayer AG (Xetra:BAYN), among others.

The status quo would perpetuate the low water mark for pharmaceutical IP protection since China joined WTO: the protection period between new drug approval and the entry of generic competition for most new drugs introduced to China over the last decade has been less than half the protection period in the U.S.

Meanwhile, the promised new Patent Law amendments omit any patent linkage provision.

Instead of settling down on a plan to implement patent term restoration, the patent office circulated a questionnaire in September seeking industry comments on the desirability of patent term restoration.

A 2018 report in China IP magazine shows that more than half of pharmaceutical patents challenged by generic drug companies recently have been invalidated by the Chinese patent office.

These developments suggest that the wind for IP protection has shifted 180 degrees in just two years. The 2017 Directive is still in place with its great promise of a new generation of pharmaceutical invention and leadership, but the promise has become a whisper.

While it’s anyone’s guess what near-term considerations have caused China to change its mind, it is a historic fact that the U.S. assumed leadership of pharmaceutical innovation by delivering on the same promises that appear in the 2017 Directive.

This week’s trade talks would be a good time for China to deliver on its promise of pharmaceutical IP protection.

In 1984, the U.S. enacted a patent linkage and patent restoration law, now known as the Hatch-Waxman Act, that assisted both innovative and generic drug producers. The amendment to the U.S. patent law and the Federal Food, Drug and Cosmetic Act clearly protected every innovative drug until its expiration and granted patent term extensions for FDA and patent acquisition delays.

It also gave generic producers access to innovators’ clinical data and permitted them to prepare to enter the market as soon as a pharmaceutical reached the end of its protection period. The 1984 Act also gave generics companies economic incentives and mechanisms to challenge patent validity.

Hatch-Waxman’s balanced approach stimulated investment in risky innovation, which U.S. players used to create new and better medicines. A new generation of strong generic drug companies also emerged to address public need for affordable medicines.

Even a quick comparison of current U.S. and Chinese laws shows that China has adopted all the protections for the generic side of the industry without any of the balancing protections for innovators and research companies.

To restore that balance and protect the investments that will produce new Chinese pharmaceuticals, China needs to carry out its 2017 promise. The benefits will go to the Chinese public, which will receive higher quality and better health care.

With its world-class education systems, China could produce the scientists and engineers to match and compete with the U.S. pharmaceutical market. Indeed, competition always improves performance and benefits the public.

Without proven IP protections, however, no investor can risk the vast resources required to compete in this risky but potentially rich market.

The trade stalemate needs a breakthrough. The leadership of China’s Communist Party and State Council have already recognized that IP protection is essential to meeting the nation’s public health goals.

As the Directive from China’s top governing offices reaches its second anniversary, this week’s trade talks would be a good time for China to deliver on its promise of pharmaceutical IP protection.

Randall Rader is former Chief Judge of the U.S. Court of Appeals for the Federal Circuit (CAFC) and the founder of The Rader Group. Anthony Chen is a partner at Jones Day in Shanghai.

Both are advisory members of the U.S.-China IP Cooperation Dialogue organized by the U.S. Chamber of Commerce and Renmin University of China.

The views and opinions expressed in this article are those of the authors alone and do not necessarily reflect the position of any of the organizations of which they are members, or the views of BioCentury.