China’s life sciences and healthcare (LS&H) industry underwent an unprecedented transformation in 2023 consisting of numerous challenges and opportunities. Within this year, BD transactions primarily included out-licensing of ex-China rights, China commercialisation partnering, asset acquisition and regaining drug product rights, which reflected the courage of China’s LS&H market players to proactively seek changes and rebuild corporate strategies in a quickly shifting market landscape.
Fangda Partners’ life sciences team remained active in advising on LS&H corporate transactions in 2023 and recent key deal highlights included (a) Hengrui Pharma (600276.SH)’s out-licensing partnership with Aiolos Bio to exploit the innovative anti-TSLP mAb (SHR-1905) outside of Greater China; (b) Kanghua Biological (300841.SZ)’s grant of exclusive rights to HilleVax for exploitation of recombinant hexavalent VLP norovirus vaccine outside of Greater China; (c) CStone Pharma (2616.HK)’s sale of the Tibsovo® (Ivosidenib) business, asset and goodwill thereof in Greater China and Singapore to Les Laboratoires Servier; and (d) a number of commercialisation arrangements entered into by multinational pharmaceutical companies with leading CSOs.
I. Key takeaways and considerations for China LS&H transactions
The constantly evolving regulatory landscape in China contributes to the unique characteristics of clinical trials, market authorisation, manufacturing and commercialisation, as well as the price and reimbursement system. By using cross-border licensing deals as an example, we provided below some notable issues with distinctly Chinese characteristics.
- Particularity of MAH system for imported drugs. The imported drugs and locally manufactured drugs are governed by separate systems under the regulatory framework for medicines in China. If a Chinese company merely in-licenses the right to, among others, register and commercialise an imported drug in China, in most cases the overseas licensor would continue to be required to apply for and hold marketing authorisation holder (MAH) status in China, while the Chinese licensee can only act as the local regulatory agent until the drug’s locally manufactured version becomes available. We observed that some companies in China are exploring alternative MAH eligibility approaches for imported drugs to address such a scenario.
- China local study data to support overseas drug registrations. In recent years, we saw successful cases where a marketing authorisation application solely replying on trial data generated from a China local study was eventually accepted by non-PRC regulatory authorities (eg, the EMA). Based on our review of public FDA meeting minutes concerning trial data of China local studies, data submission criteria required by different regulatory authorities (eg, clinical trial endpoints) may vary across jurisdictions, which means that applicants should plan ahead to have clinical trial designs to meet all potentially applicable requirements. We recommended that, for the purpose of accelerating product launch in each party’s territory, the parties communicate with relevant regulatory authorities beforehand and, as between the parties, clarify their roles and responsibilities, cost allocation and decision-making mechanisms for each stage of clinical trial(s) in particular the stage designated solely to benefit the regulatory filing of a party’s territory.
- HGR regulation and data protection. Conducting clinical trials in China would involve the use, transmission and processing of China’s human genetic resources (HGR)1 which would be subject to stringent requirements under Chinese biosafety and HGR regulations. An entity intending to conduct or sponsor clinical trials in China must complete appropriate approvals or filings relating to international scientific collaborations. Additional procedures may be triggered where HGR information needs to be provided to non-PRC entities or HGR samples need to be shipped outside of China. Furthermore, the requirements2 concerning personal information and data protection will apply if a clinical trial involves the collection and use of personal (sensitive) information and important data within the context of the Chinese regulatory regime.
- China’s latest movements on patent protection. China’s current patent system strengthens the protection of innovative drugs and patents that: (i) patents relating to compound, preparation method or pharmaceutical use of a qualified innovative drug may be granted a patent term extension (PTE) of up to five years (eg as compensation for regulatory review time); and (ii) the patent linkage system has been introduced which provides interested parties a viable pathway (by way of lawsuits or administrative rulings) to determine whether a generic drug would fall within the patent protection scope of a marketed drug, with the aim to safeguard the rights and interests of patentholders and reduce the risk of post-marketing infringements.
II. Observation of and strategies for concluding China LS&H transactions
- ‘Front-loaded’ structure preferred by Chinese companies. The turmoil in the stock market for the LS&H sector continues and has impacted the primary market in a negative way. This has prompted Chinese biotech companies to proactively pursue out-licensing and asset divestitures to secure near-term funding and manage uncertainty of the current and future volatile markets. We noted that when evaluating LS&H deals, Chinese companies would place greater emphasis on the immediate cash flow (ie, upfront payment and near-term milestones) a potential deal can bring to the company, even considering exchanging certain mid to long-term economics.
- Pursue all potential pathways for effective price reduction. Compared with the high drug prices and mature reimbursement schemes in Europe and the US, tremendous pressure was continuingly exerted on drug prices in China so as to alleviate the burden on the national healthcare reimbursement system, which poses challenges for domestic companies to achieve sustainable profit margins through drug commercialisation. Therefore, Chinese biotech companies will continue to look into all approaches to reduce drug costs, eg, to obtain decision-making authority over price adjustment and the inclusion in China’s National Reimbursement Drug List, to set specific timeframes of completing manufacturing technology transfer and to improve visibility of fully burdened manufacturing costs.
- Recent acquisition transactions of Chinese biotech. After a long term of silence in China’s LS&H acquisition market, AstraZeneca’s announcement of its acquisition of Gracell Biotechnologies (a Chinese biotech focused on CAR-T cell therapy) in December 2023 and Novartis’s announcement of its acquisition of SanReno Therapeutics (a Chinese biotech focused on therapeutics for renal diseases) in January 2024 sparked discussions in the industry. Though it remains to be seen whether these cases will lead to a wave of biotech M&As in China, they do indicate that the management teams and investors of the Chinese LS&H companies are open to deploying M&A as a means of exit. We will continue to monitor the progress of the Chinese LS&H M&A market.
High-quality transactions can provide effective solutions to financial and pipeline development dilemmas. Chinese LS&H companies are striving to weather the market downturns and seize opportunities amidst the current environment. As external advisers, we will continue to assist LS&H companies to navigate various challenges through market cycles and, together with our clients, await the signal of a robust reviving of the LS&H industry.
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1. See the Administration of Human Genetic Resources and Implementation Rule for the Regulation on the Administration of Human Genetic Resources for the definition of HGR.
2. See the Personal Information Protection Law and Data Security Law.