Intellectual Property and Outsourcing in China: Minimizing risk whilst maximizing return on investment

Intellectual Property and Outsourcing in China: Minimizing risk whilst maximizing return on investment

The pharma outsourcing industry in China has experienced over 35% year on year growth in the past few years. Increasingly, the sophisticated service offer of multinational CROs/CMOs is being challenged by improving Chinese players importing Western expertise, experience and business models to this fast growth market. However, there are still wide variations in service quality and capability from domestic outsourcing providers and many pharma and biotechs in Western markets are still reluctant to transfer parts of the drug development process to China.

Their concerns largely stem from issues around intellectual property rights (IPR), copyright infringements and counterfeiting. At both a corporate and governmental level, this weakness has been recognized and several key changes have been made to Chinese patent law, while service providers have also sought to improve their IPR protection processes and service standards. Nonetheless, key differences in secure IPR protection standards and service capability remain among domestic players.

‘Intellectual Property and Outsourcing in China’ is a new report published by Business Insights that explores the expanding pharma outsourcing market in China to discover how large pharma, small-sized pharma and biotech can most effectively utilize the country’s service offerings and capabilities. It examines the latest outsourcing trends and service provisions across all stages of the drug discovery process and profiles the leading domestic CRO/CMOs. This report provides an in-depth investigation of the changing IPR protection landscape in China and analyses the strategies which can minimize infringement risks. Case studies are used to illustrate the success of recent CRO/CMO partnerships with Western companies and key criteria for selecting suitable service providers are also identified.

Some key findings from this report...

• China is the world’s most attractive destination for Pharma outsourcing based on an analysis of patient pools, cost efficiency, regulatory conditions, available expertise and infrastructure.
• There were 694,153 patent applications in China in 2007, a CAGR of 22.5% on the number of applications in 2003 (308,487). At this rate, China will be the world’s largest patent-filing jurisdiction by 2012.
• China’s service capabilities are strong, with full-scale medicinal chemistry services currently available from 26 CROs. Services include structure-based rational drug design, structure-activityrelationship (SAR)-based activity/potency optimization, and the optimization of pharmacological properties for lead compounds.
• In the next 3 to 5 years, the service capabilities of many China-based service providers will develop quickly and change the IP risk profile. Currently, the domestic industry is highly proficient in large-scale manufacturing but relatively weak in preclinical and clinical drug development, and as providers’ capabilities increase the need for verification of effective IP protection protocols will intensify.
• The market will experience high growth of around 35% year on year to 2011. During this period, the industry will likely see investment in targeting, identification and validation capabilities.

Top reasons to order your copy today

• Understand how large pharma, small-sized pharma and biotech companies can benefit from the Chinese pharma market with this report’s analysis of the number of companies involved, levels of industry maturity, and existing/projected service offering capabilities.
• Assess the the risk factors associated with outsourcing decisions and measure the suitability of China-based CROs and CMOs with this report’s examination of each class of service provider and the key criteria for selecting the most appropriate company, including IPR protection protocols, service quality/capability, cost and geographic location.
• Understand how the IPR protection environment in China is evolving by evaluating the latest regulatory developments and patent application trends for domestic and multinational companies, in addition to this report’s market forecasts for outsourcing industry growth to 2015.
• Identify how IPR protection varies across each stage of the R&D process and use case studies of partnerships between Chinese CROs/CMOs and Western companies to measure the success of recent endeavours.

Key issues examined in this report...

• Variable service offerings. Many Chinese pharma companies that have API manufacturing skills only offer their services on a seasonal basis. They are not professional CMO providers, as their service offerings are largely dependent upon spare production capacity levels.
• Inflated service claims. Although many CROs/CMOs claim a broad service scope to attract business, their actual service skills are limited to only a couple of areas. Specifically, scientific staff often lacks sufficient experience, training and deliverability guidelines.
• Inconsistent IPR protection system. IPR protection is no longer a serious issue amongst top-tier service providers but may still be weak in lower tier domestic companies and those operating in rural areas.
• IPR infringement cases and counterfeit drugs: Drug counterfeiting is still a real problem and most IPR infringement cases are related to trademark/copyright violations. However, there have been no reported cases of infringement of a western pharma or biotech’s IPR by a Chinese company during their outsourcing collaborations.

Your questions answered...

• How does China compare to other outsourcing destinations?
• What services are offered by the CRO and CMO industry in China?
• What are the advantages of outsourcing different stages of the R&D process by large/small-sized pharma and biotech companies?
• What are the government’s development priorities for the industry?
• How has medical infrastructure supported region-specific growth in outsourcing and will this trend continue?
• What is the strongest sector of China’s pharma outsourcing industry in terms of both number of companies and strength of their services?
• Who are the major Chinese players in contract research and in which areas do they specialize?
• Which multinational companies have projects outsourced to China?
• What actions are the government taking to strengthen IPR protection?

Table of Contents

• Intellectual Property and Outsourcing in China

Executive summary 10

• Pharmaceutical outsourcing in China 10
• IPR protection in outsourcing to China 11
• Incorporating IPR protection 12
• Future developments in IPR protection 13

Chapter 1 The pharmaceutical outsourcing market in China 16

• Summary 16
• Introduction 17
• Trends in Chinese outsourcing 18
• Growth of the industry 18
• The attractiveness of China 19
• Fast domestic growth 21
• Enhanced growth driven by international companies 22
• The drug discovery process 24
• Current outsourcing trends by stage 25
• Outsourcing of lead discovery and optimization 25
• Outsourcing preclinical research 26
• Outsourcing clinical research 27
• Current service capabilities 27
• Early stage drug discovery 27
• Pharmacological property studies and in vivo preclinical research 30
• Clinical trials 30
• Contract manufacturing 31
• Major players in the contract research market 32
• Companies outsourcing to China 35
• Outsourcing by pharma and biotech companies 35
• Direct involvement of Western companies in R&D in China 36
• Key issues 39

Chapter 2 IPR protection in China 42

• Summary 42
• Introduction 43
• Western perceptions of IPR protection in China 44
• IPR protection by phase of development 46
• Target identification and validation 47
• Lead discovery/optimization 47
• Drug development (including both preclinical and clinical trials) 48
• Manufacturing 49
• IPR protection in China 50
• The development of IPR protection in China 50
• Copyright theft in China today 54
• Trends in patent filing 54
• IPR infringement prosecutions 58
• IPR infringement prosecution transparency 59
• SFDA involvement 60
• IPR protection in Chinese pharmaceutical outsourcing 61
• Process involved in outsourcing to a Chinese CRO/CMO 61
• IPR protection involved in the first step of outsourcing process 62
• CRO/CMO protection of IPR 63
• The current situation 63
• Weaknesses in the Chinese IPR protection system 65
• Brief case studies 65
• In-licensing 66
• Shanghai Sunway Biotech and Onyx Pharmaceuticals. 66
• Hainan Noken Pharmaceuticals and Medivir AB 66
• Simcere and GSK 66
• Outsourcing 67
• WuXi Pharmatech and AstraZeneca 67
• Novartis 67
• Promega and the Guangzhuo Institute of Biomedicine and Health 68
• Cases of pharmaceutical IPR infringement in China 69
• Togjitang Chinese Medicines Company and Yulongyadong
• Pharmaceuticals 69
• Pfizer vs 12 Chinese pharmaceutical companies 69
• Pfizer and Lianhua Pharmaceuticals 69

Chapter 3 Incorporating IPR protection into outsourcing strategies 72

• Introduction 73
• Potential risks in outsourcing to China 73
• Assessing project suitability for outsourcing 76
• Determining requirements and objectives for outsourced projects 79
• Choosing a service provider 81
• Classification of Chinese service providers 81
• Criteria for selecting the ideal service provider 84
• Measures being undertaken to protect IP at the service provider 85
• Service quality 85
• Cost 86
• Geographic location 86
• CRO/CMO business model 87
• Management 88
• Making the final decision 88
• Strategies to protect IPR 89
• Partnership 89
• Incorporation of milestones or royalties into the contract 90
• Alternative strategies 91
• Best practice for protecting IPR during the outsourcing process 91
• Risks and rewards 93

Chapter 4 Future developments in IPR protection and their impact on outsourcing 98

• Summary 98
• Introduction 99
• Drivers and resistors 100
• Further improvements in service capability and quality 100
• Further improvement in IPR protection 102
• Negotiating the Chinese pharmaceutical market 103
• Establishing a facility in China 104
• Advantages 104
• Disadvantages 104
• Forming a joint venture 105
• Advantages 105
• Disadvantages 105
• Establishing a partnership 105
• Advantages 106
• Disadvantages 106
• Outsourcing 107
• Advantages 107
• Disadvantages 107
• Future outlook 109
• Significant improvements in IPR protection 109
• Fast growth in pharmaceutical outsourcing 110
• Improvements in service capability 111
• Market forecast 111

Chapter 5 Appendix 116

• Company data 116
• Research methodology 122
• Glossary 123
• Index 126

List of Figures

• Figure 1.1: Country Attractiveness Index for Clinical Trials 20
• Figure 1.2: The drug discovery, development and manufacturing process 24
• Figure 1.3: Distribution of CROs/CMOs by technical area 29
• Figure 2.4: IP risk levels at each stage 46
• Figure 2.5: Milestones in the development of China’s IPR protection system 51
• Figure 2.6: Patent applications in China (total applications), 2000-2008 56
• Figure 2.7: Development of patent applications filed by domestic companies and foreign companies (total applications), 2000-2008 57
• Figure 2.8: Lawsuit cases in China involving IPR infringement (total infringements), 2004-200759
• Figure 2.9: Outsourcing to a Chinese CRO/CMO 61
• Figure 3.10: Potential risks in outsourcing 74
• Figure 3.11: Criteria for classification of Chinese service providers 81
• Figure 3.12: Risks and rewards in outsourcing 94
• Figure 4.13: The Chinese outsourcing industry size ($bn), 2007-2015 113

List of Tables

• Table 1.1: Profile of Suzhou BioBay Industrial Park 22
• Table 1.2: Major multinational CROs in China 22
• Table 1.3: Distribution of CROs/CMOs by technical area 28
• Table 1.4: Major Chinese players in contract research 33
• Table 1.5: Major multinational CROs in China and their activities 34
• Table 1.6: Multinational companies with projects outsourced to China 37
• Table 1.7: Generic manufacturers with activities in China 38
• Table 1.8: Venture capital firms with Chinese activities 38
• Table 2.9: Government educational program 52
• Table 2.10: Government actions to strengthen IPR protection 53
• Table 2.11: Patent applications in China (total applications), 2000-2008 56
• Table 2.12: Development of patent applications filed by domestic companies (total applications), 2000-2008 57
• Table 2.13: Development of patent applications filed by foreign companies (total applications), 2000-2008 58
• Table 2.14: IPR infringement cases in China 59
• Table 3.15: Checklists for self-assessment of IPR risk tolerance level 79
• Table 3.16: Criteria for selecting the ideal service provider 84
• Table 4.17: Chinese outsourcing industry, 2007-2015 112
• Table 5.18: Company Profile of WuXi PharmaTech 116
• Table 5.19: Company Profile of ChemPartner 117
• Table 5.20: Company profile of Shanghai Sunway Biotech Co. 118
• Table 5.21: Company profile of BioDuro 119
• Table 5.22: Company profile of Chemizon 119
• Table 5.23: Company Profile of Radiant Pharma & Tech 120
• Table 5.24: Company Profile of Jiangsu Zhongdan 120
• Table 5.25: Company profile of Sundia Meditech 121
• Table 5.26: Company profile of HD Biosciences 121