China Invests in Drug R&D, But Manufacturers Call for Better Rewards

As reported previously by Global Insight, China's Ministry of Science is to earmark part of a 100-billion-yuan (US$14.2 billion) technology development fund to the development of new medicines over the next 12 years. Ambitiously, the Ministry has also announced that Chinese companies will develop up to 30 new medicines to treat cancers, cardiovascular disorders, and hepatitis over the same period. Moreover, between eight and 10 new "platforms" will be established to promote drug R&D. Although the precise share of the fund that will be taken by drug development entities is unknown—and so is the nature of the projects involved—the Ministry of Science insists that funding for healthcare research will increase in real terms by as much as 30% by the end of the decade. The focus on realising the commercial potential of new discoveries will be more intense than before (see China: 20 March 2008: Tianjin Hypes New Biomedical Hub).

According to an Interfax report, the purpose of the additional investment is simply to make China a global centre of excellence for drug discovery. The Ministry's director for the project openly acknowledges that the reason for the investment is to "gain recognition from developed countries for drug development". Unfortunately, a number of domestic drug-makers have complained that the new investment will be effectively fruitless unless intellectual property (IP) and drug registration rules are reformed to place a premium on Chinese innovation.

For Chinese pharmaceutical firms, the root problem is that there is no commonly accepted definition of what constitutes a "new chemical entity" in China. Legislation was recently reformed to stop firms from gaming their registrations by filing new dosages as new medicines, but the State Food and Drug Administration (SFDA) continues to classify NCEs somewhat broadly as "innovative drugs", many of which are only new to China. For its part, the patents office, the State Office of Intellectual Property Protection (SIPO), categorises novel pharmaceuticals as "intellectual property drugs". Unfortunately, these two definitions are incompatible in practice (see China: 25 October 2007: SFDA Refuses to Accept Patent Linkage When Registering Drugs).

For once, multinationals and Chinese firms seem to agree that innovation needs to be recognised through the patenting system and in drug registration. Indeed, firms such as NBP Pharmaceutical claim that even generics marketed by foreign firms enjoy a pricing preference despite their lack of real novelty. Another domestic company, Shijiazhuang Pharmaceutical, claims that a drug it developed in the 1990s known as butylphthalide failed to gain patent protection in China because it was registered before a key reform of the intellectual property system came into effect in 1993.

Outlook and Implications

It is encouraging that the Chinese drug industry is calling for a clear definition of novelty in drug regulation. Although this would be a plus for foreign research-based firms, local firms are calling for preferential treatment as well. Sweeteners could include adding more Chinese-made drugs to the new national list of essential, reimbursable medicines (due for publication in June 2008), or allowing local firms' sales representatives more direct access to prescribers in hospitals.

There is the risk, then, that China's government will increasingly turn to interventionism in order to foster innovation, but will end up supporting ailing domestic drug-makers. With the Ministry of Health now taking over the SFDA, its influence in the marketplace will be greatly increased, not least because the SFDA has involved itself directly in medicine procurement. Taking this path could foster a culture of mutual dependence that has very little to do with innovation.

Related Article

• China: 17 March 2008: What Will Healthcare Reform Mean for the Chinese Pharmaceutical Industry? 

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