China’s Pharmaceutical Sector And The IP Puzzle15/03/2016 by Intellectual Property Watch Leave a CommentShare this Story:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Google+ (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)The views expressed in this column are solely those of the authors and are not associated with Intellectual Property Watch. IP-Watch expressly disclaims and refuses any responsibility or liability for the content, style or form of any posts made to this forum, which remain solely the responsibility of their authors.By Pietro DionisioDespite impressive growth, the pharmaceutical sector in China still relies on generic drug production since the majority of domestic companies cannot compete with country-based foreign corporations. Currently, following WTO pressure to oblige China to comply with IP regulations, more and more patented drugs are entering the market. Unfortunately, in spite of a newly introduced IP friendly bill, a puzzling situation persists. puzzle boxThe 1970s economic reforms represented an opportunity for China’s pharmaceutical sector. Following low R&D investments during Mao’s tenure, momentum increased with the advent of Deng Xiaoping. As of 1978, the Government actively fostered industrial development as a pillar of economic growth; and the surge in Chinese funding increased the number of pharmaceutical firms from 680 in 1980, to 6,357 in 1999. Since 2011, China has become the third largest pharma market globally, with $60 billion annual turnover.While US funding for medical research declines, China steadily progresses as shown by a total $1,1 billion investment in new drug development between 2011 and 2015.Despite this growth, China remains, however, far behind countries (such as the US and in the EU) renowned as home to top drug industries simply because the majority of Chinese companies are not competitive with foreign big corporations. As a result, almost all Chinese firms are currently focused on the production of generic medicines (more than 95 percent of chemicals produced in the country are, in fact, generics).While China is not an ‘original drug producer’, it plays a key role in the manufacturing and export of active pharmaceutical ingredients (APIs). Since 2012, China has become a world leader in APIs and is a main supplier to the global generic drug market, including that of India and other emerging countries.Worth mentioning, is the inside dynamics of China’s pharmaceutical sector, both fragmented and highly competitive. In spite of this, recent estimates show that the top 20 manufacturers in China only account for less than a quarter of the country’s own total pharmaceutical market which is dominated, in fact, by country-based foreign drug corporations.Owing to these circumstances, many Chinese firms are entering Sino-foreign joint ventures to gain competitiveness in the market. Intriguingly, this clashes with evidence that, over the last decade, foreign drug companies have been increasingly setting up their country-based operations on their own without Chinese partners.Against the background of generic drug predominance, evolutionary turning points are indeed in the offing at a time when, following WTO pressure to make China comply with intellectual property (IP) regulations, more and more patented drugs are entering the country market.Relevantly, though the rules of law state that IP rights shall be protected, the reality is quite different. While, until recently, the Chinese firms simply copied drugs from each other without any incentive to develop new medicines, patent-violating drugs are today a rampant problem though weak enforcement mechanisms often let manufacturers go unpunished.As a result of international pressure, the government recently introduced a bill to stem the tide, and made it public to solicit comments.The bill would empower the Chinese IP offices, and establish penalties for violations:In cases of wilful infringement, compensation is calculated at up to three times the damages inflicted by the act of infringement.The upper limit of statutory damages is to be increased to a range of RMB 100,000 to RMB 5,000,000 (being currently between RMB 10,000 and RMB 1,000,000).Repeated infringement or group infringement (infringement by multiple parties) will incur action by local IP offices, including seizure of both the infringing products and the tools/molds used to make them.Local IP offices are entitled to apply fines of up to five times the amount of illegal sales in cases of more than RMB 50,000 worth of illegal sales, otherwise the fine wouldn’t go beyond an amount of RMB 250,000 or less.Apart from the newly proposed measures above, concerns remain. For instance, a wide range of US stakeholders in China continue to report serious obstacles to effective IP protection in all forms, including patents, copyrights, trademarks, trade secrets, and pharmaceutical test data as well.Relevantly, China has undertaken commitments to ensure that no subsequent applicant may rely on undisclosed tests or other data submitted in support of an application for marketing approval of new pharmaceutical products for at least a six-year period from the date of marketing approval in China.In the face of this, some reports allege that generic manufacturers would have been granted marketing approvals by the China Food and Drug Administration (CFDA) prior to the expiration of that period (even before the originator’s product approval in some cases). This adds to claims by foreign pharma companies that the government favors Chinese firms including by permitting greater leeway for national companies to produce their drugs.Admittedly, China faces an ambiguous IP situation: at a time when rampant reverse engineering outweighs weak enforcement of IP rules, civil infringement lawsuits have become more frequent and reliable over the past few years.All things taken together, while the Chinese system is seemingly moving in the direction of more reliable IP protection, stronger legislation bound up with full compliance by public authorities and pharmaceutical firms is yet to come. Pietro Dionisio has a degree in Political Science and International Relations from the Cesare Alfieri School, University of Florence, Italy. 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