Israel Trade & Economic Office, Embassy of Israel
China’s Compulsory Licensing Decree
Measures on Compulsory Patent Licensing were issued by the Chinese State Intellectual Property Office (SIPO) on March 15th, 2012, and a modified version went into effect this year on May 1 (Link To Full Chinese Text). Compulsory Licensing (CL) has been allowed inChina since 2001, but the current modification lays out detailed criteria for when a CL will be granted, making the path to CL issuance a great deal clearer. In 5 chapters and 43 articles, the new licensing law describes in detail the CL application process and key considerations involved in the decision to issue a CL. Article 6 of the new law, for example, states that a CL may be issued for a “national emergency or any extraordinary circumstances, or for reasons of public health.” The remaining articles clearly spell out the process for submitting a CL application, the labeling requirements for drugs manufactured under this law, timing for decisions after submitting the application, and when the CL maybe terminated. The SIPO takes full responsibility for all steps in the processes and decisions made.
The driving force for this CL law is similar to that seen in other countries, that is, to decrease the cost of pharmaceuticals. The majority of the drugs facing pressure from CL laws are HIV/AIDs or cancer treatments, which can be exceptionally expensive and thus inaccessible to citizens within emerging markets such as China where many have low incomes and health insurance systems do not reimburse fully for expensive pharmaceuticals. In these situations much of the financial burden is put on the patient, and governments seek out CL judgments to make therapies more affordable rather than leaving treatments out of reach for many.
Implications of Compulsory Licensing in China
The move by SIPO to issue a CL law in China presents many unique conditions that are not found in other countries, except for perhapsIndia.China’s generic drug makers have been producing the active pharmaceutical ingredients (APIs) for pharmaceuticals for years. After the API is produced in China and exported to the foreign drug partner to be made into the finished product, the drugs are then exported around the world, including toChina. In many cases the finished products are sold at much higher prices than the standard Chinese citizen can afford. What makes CL particularly worrisome for foreign manufactures is that these API manufacturers in China could rapidly transition to finished product manufacturing. For example, as of the end of July there were 430 registered drug manufacturers based in China with current registration for 2012 (FDA.gov).
One of the driving reasons for this update is likely the Chinese government’s acknowledgement that HIV/AIDS is a substantial health issue in China. Member bodies of the AIDS Working Committee of the State Council worked together to draw up annual AIDS response work plans and to strengthen coordination and collaboration across numerous agencies. The 2012 China Report from the Joint United Nations Program on HIV/AIDS noted excellent progress in education and treatment in China, where an estimated 780,000 people are living with HIV/AIDS (UNAIDS 2012 China Report). While this number may be low relative to China’s population of 1.4 billion, the number infected is estimated to grow to 1.2 million by 2015.
With the modified CL law being issued very recently it remains to be seen how China will implement these regulations, but the potential implications need to be taken into account by multinational pharmaceutical firms since it is not clear what recourse, if any, a foreign drug company would have in challenging a CL ruling inChina. For example, should a company keep or transfer their API manufacturing toChinaif they feel they are at risk for CL? There are many strategies a firm could take to mitigate their risks if they feel that a product might at risk for CL scrutiny. To date all products placed under a CL have been traditional small-molecule drugs, but as biologics become more common and domestic Chinese companies enter the biosimilars market, biologics may also face CL, especially as they become a larger part of the therapeutic treatment space. It is unlikely that China will invoke the compulsory licensing law frequently, but it should factor into a firm’s overall strategy for China, especially for high-cost treatments that that could benefit a large population, such as therapies for cancer, HIV/AIDS, or perhaps diabetes.
Seth J. Goldenberg, PhD
President, Asia Pacific Bio Intelligence, LLC
Courtesy of: seth.goldenberg@ap-bi.com