China's pharmaceutical industry has made great strides in the last decade. Hengrui Pharmaceutical, the largest pharmaceutical company in the A-share market, has a market value of 230 billion yuan,which is twice the value of TEVA, the world's largest generic drug company.Pharmaceutical industry is more strictly regulated by the government hencethe intellectual property management of the pharmaceutical industry is significantly different from other industries.Nowadays, the domestic policiestoward pharmaceutical industry is getting more closely with the international ones, and many more pharmaceutical companies are activelyparticipating in international pharmaceutical competition, thus intellectual property management is becoming increasingly important for them.

Because of the particularity of the pharmaceutical industry, its intellectual property management has certain characteristicscompared with other industries. I will elaborate from the following four aspects:

1. Long development cycle of innovative drugs with high investment and low success rate

The pharmaceutical industry is under government supervision and there are strict regulations on the safety and effectiveness of drugs. In order to meet the requirements , before launching a drug to the market, it will take particularly long time on the development and undertakea number of stages, including preclinical research, clinical research, registration and approval.In the United States, it took more than 10 years to develop and launch a new drug in the past, costing about $1 billion.Withsuch a long research and development cycle, new drug development will easily fail if it cannot meet the requirements at any stage, so that the success rate is quite low.The pastexperience of the United States shows thatonly 1 in 100,000 compounds can stand out and be launched to the marketsuccessfully.Therefore, the high investment and low success rate of new drug development has greatly enhanced the value of new drugs and their corresponding patents.

2. Few patents with high value

The number of patents related to innovative drugs is not large and that of core patents is also small.Taking chemical drugs as an example, the core compounds usually have two patents: generic formula patents and specific compound patents, which are known as basic patents.Base on that, there are dozens of other patents for crystal forms, preparations, processes and so on.But compared with hundreds of thousands of patents of other specific industrial products, the patents of drugs are rare.

The high investment in research, long development cycle and small number of patents directly result in the high value of medical intellecturalproperty. Among those, there is also an obvious “tail-raising effect”in pharmaceutical patent, that is,the closer to the patent expiration date, the more value it will have.In common sense, patents in other industries tend to have more value in the early life period because of its innovative value, but over time, the value becomes lower as new technologies continue to emerge and the old ones are gradually phased out.In the pharmaceutical field,ittakes more than 10 years for a new drug to be developed and marketed, followed by a marketing incubation period, so that the sales peak of the drug usually appears in the last 5-8 years of the patent life. In the meantime, even with the emergence of other new drugs, the original drugs can still take up most of the market share by virtue of the first-mover market advantage. For example, the sales volume of Lipitor of Pfizer Incorporationin the last few years ofits patent lifeexceeded $12 billion/year, but afterits compound patent expired at the end of 2011 and generic drugs went on the market, its sales volume in 2012 and 2013 dropped down to $5.1 billion and $1.8 billion, respectively, which was a huge decline.Once thepatent expires, under the pressure ofthe flooding ofgenerics into the market, the price of a drug will fall off a cliff, which is also known as “Patent Cliff”.

3. Industry supervision

Drugs are special commodities and their R&D, production and circulation are strictly restricted by laws and regulations. Therefore, in the pharmaceutical industry, the intersectionof pharmaceutical regulations and intellectual property laws lead to the uniqueness of patent management in the industry.

(1)   Patent protection period

In other industries, when patent expires, the corresponding technology will lose the legal protection.However, in the pharmaceutical industry, besides patent protection, companies can also rely on government administrative protection to prevent generic drugs from entering the market.In some European developed countries and the United States, the drug patent termcan beextended, such as the extension of the patent protection period for new medicine and those can be applied tochildren.The former refers to an extended period of up to five years of patent protection for a new drug with a completely new structure andbeing launched for the first timein the United States; the latter refers to the appropriate extension of the patent protection or administrative protection period of a drug if it meets the requirements of children medication,.

Thus, when do research onthe drug patent , besides the regular patent term, we must pay attention to the administrative protection of related drugs to avoid erroneous conclusion.

(2)   Product information disclosure

Because of the need ofregulation, the government also requiresthat pharmaceutical companies to publish the information ofthe drugs under researchandon the market, which constitutesanother feature of pharmaceutical patent:simple and easy infringement identification.On one hand,  according to the regulation,the main ingredients, excipients, indications and other informationof the medicine on the market must be displayed in the drug specifications; on the other hand, in some countries, especially United States, the patents related to a drug need to be published on the official website of FDA, thus the public can easily find the relevance of the patents and the marketed drugsthrough the specification.if one of the chemical compounds  once the patented compounds .

Information of drugs under researchshould also be properly disclosed according to the law.In China and the United States, if a drug is to be tested in humans, relevant information about the drug must be posted on the corresponding website (the clinical trial registration website in China is http://www.chinadrugtrials.org.cn/; and the clinical trial registration website in the United States ishttps://clinicaltrials.gov/) including targeted people with certain indication, drug information and test plan, etc.Through the above information, we can easily get the drug informationto identify patent infringement.

This is also the difference between the pharmaceutical industry and other industries.In other industries, in order to obtain accurate information about other people's products, peopleusually need to find evidence by reverse engineering and other means, which is difficult to do mostly.It is just because of the publicity of pharmaceutical information that the path of patent infringement identification is much clearer and more reliable, which improves the intensity of pharmaceutical patent protection and indirectly promotes the value of pharmaceutical patent.

(3)   Medical market access

Drug as a special commodity, even if approved to be launched to the market, it has to meet the various conditions set by the government before entering into the circulationlink.The medical market access mechanism mainly includes medical insurance negotiation, pricingmechanism, bidding system, etc.

In China, the pricing system of drugs is very complicated.The National Development and Reform Commissionhas the power to set priceofmedicinesbut the manufacturer must also negotiate with the provincial bidding office or hospitals on the provincial bidding platform.The common principle of the provincial policy is to carry out hierarchical management for drugs, and the competition at the same level is very fierce.Many provinces have introduced policies to createseparate layers for patented drugs or protectthem from being classified into the most competitive layers.For example, in 27 provinces and autonomous regions in China, drugs with compound patents can be stratified separately; in Chongqing, Liaoning, Shandong and Yunnan, the government will add points for drugs with process patentsto take them outfrom the most competitive layer ; and in Jilin and Yunnan, the similar protection policy would apply to the drugs with composition patents.

Moreover, inthe process of national health insurance negotiations, patents are also play a very important role, as the new drugs protected by patents would be allowed to enter the health insurance directory, considering the significant benefit it will bring to the public.

4. Brand drug

In the field of pharmaceutical, BrandDrug with trade name is a proper noun and its counterpart is Generic Drug. Every drug has a certaingeneric name which is the legal nameformulated by government or authorized agencies in accordance with certain rules.It is the generic name of a drug consisting of the certainingredient or formula and it is compulsory and binding.Different manufacturers producing the same drugs may use trade names, which can be determined by the manufacturers themselves and approved by the CFDA, or it can apply to the Trademark Office for registration of trademarks.However, the CFDAhas certain conditions for the approval oftrade name.In China, it usually only allows the first new drugwiththe core patent which areearliestly launched to the marketto have trade names (in some special cases in China, the first generic drugs on the market can also have trade names). But most generic drugs whichhave registered trademarksdon’t havetrade names.Thus, Brand Drug with trade name has got the advantageous margin to be uniquely identified on the market .

Drugs are also classified as prescription and over-the-counter (OTC).As the name suggests, prescription drugs are only allowed to sell with a doctor's prescription.OTC drugs market is full of fierce competition, whose salesis mainly drivenby advertising in China.For OTC, brandis one of the core competitivenessand plays a very important role in sales.

For prescription drugs, the client is not the patient, but the doctor who prescribes for the patient. Therefore, it is very important for the marketing staff of pharmaceutical companies to let the doctor indicate in the prescription the trade name of the drug, otherwise, the pharmacist of the hospital or pharmacy will sell the generic drug of any brand to the consumer.

In the field of drug sales, owning a brand name has become a key factor to quickly cover the market and increase sales.

In view of the characteristics of pharmaceutical intellectual property rights, Chinese pharmaceutical enterprises need to start from the following aspects in their daily intellectual property work to reduce the possible risks and obtain intellectual property benefits.

(1)   Framework of intellectual property department

The framework of the intellectual property department directly determines the status of intellectual property in enterprises.In view of the importance of intellectual property in the pharmaceutical industry, the intellectual property department of pharmaceutical enterprises can be a first level department,or at least a second level department, and should reports directly to the vicepresidentof law or R&D.As the problems faced by pharmaceutical enterprises are usually technical and regulatory issues,it is more appropriate for Chinese pharmaceutical enterprises to have intellectual property department report to the Vice President of R&D. But the problem for many Chinese pharmaceutical companies is that the head of legal affairs or R&D does not reach the rank of vice president, resulting in the intellectual property departments have no say in the operation of enterprises,whichruns counter to thenation’s initiative topromote transformation and internationalize the management of pharmaceutical industry .If Chinese pharmaceutical enterprises want to become truly competitive in the world, they must pay more attention to R&D and intellectual property management.

(2)   Patent management at the R&D side

R&D is the source of patents. The number of patents in the pharmaceutical industry is smallbut with high value, therefore,more attention should be paid to patent management at the R&D side.

First, the intellectual property department should havethe veto power overthe project initiated bythe R&D department, strengthen cooperation and communication with the R&D team and actively participate in R&D project approval, project team meetings and decision making meetingsin different project stages.Especially on the early stage of research and development, in order to decrease the loss of the enterprise, whensubstantialintellectual property risks are identifiedand there are no methods to evade the patents, the intellectual property department should use the veto power to end this project.

Secondly, the intellectual property department should strengthen the building of patent portfolio at R&D side.It should takechemical compound patents and indication patents as the basis, and further expand to the crystal, preparation and process patents. It should also pay attention to leveraging on all types of patents to fully protect the innovation, for example, the use of combination of chemical compound and crystal patents, or the combination of generic compound patents and specific compound patents.

Thirdly, the intellectual property department should cooperate with the R&D department to proactively enhance the quality of patents.The intellectual property department should pay full attention to the quality of core patents: in particular, making sure that the specificationof compound patents is clear and complete enough to fully support the claims, which requiresthe IP department to closely contact with the R&D department to obtain the necessary real experimental data.If IP department aims to apply for PCT patent, it should know the different standards of patent grantingin different regions, makingthe parentpatent applicationsmeet or slightly exceed the standardsof patent grantingin all regions.Besides, the intellectual property department should also pay attention to the qualification of inventorsassuch minor flaws can easily cause failure of patentenforcementin the United States.Because the value of core pharmaceutical patents is enormous, all future litigation risksmust be considered.

Forth, considering the need for competition in pharmaceutical industry, the intellectual property department usually starts patent application procedural in the early stage of R&D.In this stage, once patent information is disclosed and the R&D plans which are includedin it is known by competitors, it will be highly unfavorable to the enterprise.Therefore, the intellectual property department should also take measures such as procrastinating patent publicity and substantial examination procedural, or applying for continuation patent and divisional patentto prolong thepatent grantingprocess.Besides, considering the compulsory requirements of pharmaceutical regulations, the information of drugs must be made public at a certain time node, if IP department can take measures to make the patentpublicitytime goes later than the time required by the regulations, then it would be the best strategy.

(3)   Information and management support

Thanks to the government’s disclosure requirement toward the pharmaceutical enterprise, the information of this industry can be obtained through various publicchannels, from which we can detectthe other party’s development strategies to help for devising strategies.For example, the identification of infringement andsearching forlegal solutions will rely on IP department to provide more information to support the decision-making .One thing should be noted it thatthe information should be retrieved fromboth the patent disclosure and government policies, any single source of information cannot meet the requirements of intellectual property management in the industry.The commonly used information providers in the pharmaceutical field are Clarivate (formerly Thomson Reuters Intellectual Property and Technology Division), Datamonitor (based in the United Kingdom), IQVIA (based in the United States, merged with Quatiles,a former British pharmaceutical consulting firm, andIMSHealth, the world's largest pharmaceutical clinical outsourcing service provider).Enterprises can leverage on all kinds of information provided by these suppliers to establish a comprehensive pharmaceutical IP database which can provide accurate information support for project decision-making.

The intellectual property department can also cooperate with the project management department to build IP knowledge link, which canactively provide supportin the establishment of the project information database.It would be a higher goal that the intellectual property department can lead the establishment of the project information databaseand embed IP management in every link of the project.

(4)   Trademark portfolio

According to the generic names and characteristics of drugs, the intellectual property department generally determines the tradename with various departments in the third phase of clinical practice and starts trademark registration process.The trade name and its translation should be faithful, expressive and elegant.One good example is the “Prozac”, an antidepressant drugDuloxetineproduced by the Eli Lily, which has a proper Chinese name“百忧解”, means“hundreds of agonies and worries would be broken up”. The trade name of the drug Sildenafilproduced by Baiyunshan Pharmaceutical Factory in China “Jin Ge” also well conveys the efficacy of the drug, and its sales have also reached a record high since it was launched to the market in 2014.

(5)   Business secrets management

Because of the publicityof product information in the pharmaceutical industry and easy imitation of the pharmaceutical products, trade secrets management plays a very important role in the operation of pharmaceutical enterprises.

One perspective is Know-how. It is very important in technical cooperation or technology purchase because it is a crystallization of researchers’ wisdom.Some Know-how isnot patent-eligible subject matter, because theymay be a summary of the craftsmen’s experience with low creativity. Some others are patentable,but it is not appropriate to publish them through patents, because competitors can take advantage of the public information to imitate or counterfeit the patented products and evidence of infringement is difficult to obtain.Therefore, for pharmaceutical enterprises,know-how is better to be included in the trade secrets management.

But with the development of biotechnology, there are new ways to protect the know-how in the biopharmaceuticalfield,with the help of the up-to-date encryption technique,know-how owners can enforce their right through patent infringement or trade secrets stealing suit. The core of the encryption technique is to insert a specific encrypted code into the strain, and to disclose the whole gene sequence of the strain in the patent and hide the code in it. The third party has to know the length, location and key of the code before deciphering the code.If the same code is found in the products of other manufacturers on the market, the manufacturer may be deemed to have stolen its technical secrets or infringed its patents.

Generally speaking, the intellectual property management of Chinese pharmaceutical enterprises is still in its infancy, which is similar to the position of Chinese pharmaceutical industry, and there is a huge space for the future. This is also a great opportunity for our pharmaceutical intellectual property workers.As long as understanding the characteristics of intellectual property rights in the pharmaceutical industry and combining them with the mature experience of other industries, we can certainly form the intellectual property rights management skills for the industry.We hope that in the near future, our intellectual property workers will be able to contribute to the vigorous development of the pharmaceutical industry in China.