Last August, China’s State Intellectual Property Office (SIPO) invalidated the core patent for Gilead Sciences‘ flagship drug Viread (as was reported by IPR Daily and a number of other news sources). This landmark ruling comes on the heels of recent changes to China’s compulsory licensing scheme for pharmaceutical products. This quick-step of legislative reform followed by the invalidation of a major pharmaceutical patent has some foreign innovators wondering what this means for pharmaceutical innovators in China.
A ) Gilead’s Problem
The Drug & The Patents
Viread is a drug that is used to treat chronic Hepatitis B and (in combination with other anti-retrovirals) has also been used to treat HIV/AIDS. The Chinese patents (CN 1738628 B & CN 1984640 B) were each filed in 2004 and 2005 respectively and have been challenged by Shanghai-based generic manufacturer Aurisco.
The Validity Challenge
Aurisco has argued that the Viread patents lack novelty because the active ingredient (tenofavir disoproxil fumarate) was disclosed by Czech scientist Antonin Holy when he filed for a US patent for the compound in 1985. Thus the information contained therein is already in the public domain contravening article 22, Chapter 2 of the Chinese Patent Act. The Patent Review Board appears to have accepted this argument and has cancelled the Viread patent.
This comes as a blow to US-based Gilead. In recent years, its Viread patent has struggled to fend off opposition in developing markets — having been rejected in India and Brazil, and subjected to compulsory licencing in Indonesia. Aurisco’s chairman, Peng Zhi’en, was recently reported to have said that he expects the Chinese market to amount to CNY 1billion even with the onset of locally produced generics sold at one-twentieth of the price of Viread.
B) Chinese Context
The Social Context
The Chinese government’s push to make Viread more readily available likely reflects the heavy burden that both of these diseases have on the Chinese population. China is home to over 30 million chronic hepatitis B sufferers (one-third of the world total) with the cost of treatment breaching CNY100 billion (160 million USD) annually. The incidence of HIV/AIDS is also on the rise, causing 11,575 deaths in China in 2012. Given that China lost a significant amount of external funding from the Global Fund to Fight AIDS, Tuberculosis and Malaria last year, it is not surprising that the Chinese government is seeking out ways to lower the cost of treating these diseases.
It is worth noting however that in 2011 Gilead made Viread and other anti-retrovirals available to developing economies through the Medicines Patent Pool (MPP). While China was not party to the MPP at the time — it has since been admitted and appears to have access to the Viread drug at this time.
The Legal Context
While SIPO’s Patent Review Board (PRB) is the highest level of appeal in the Chinese patent system, like most other countries, Gilead can sue the PRB as a matter of administrative law at one of Beijing’s Intermediate Courts. If this is unsuccessful, Gilead can appeal to the High People’s Court for a final ruling. This was the strategy employed by Pfizer in 2007 to reinstate its patent for Viagra.
But would Gilead succeed if it challenged SIPO in the Chinese courts today? And what does Aurisco’s invalidation strategy imply about the new compulsory licensing scheme? I sat down with Hong Kong University’s Dr. Yahong Li to discuss these and other issues.
C) Policy Discussion with Dr. Li
Beatrice Sze: Given your research on patents and their affect on the Chinese biotech and pharma industries, in your opinion, would Gilead succeed if they sued today? Do you think it could pull a “Pfizer”?
Dr. Li: Without doing a validity analysis of the Viread patents it’s hard to say. However, technical merits of the patents aside, I would say that the social, political, and economic environment is tougher today for Gilead than it was for Pfizer seven years ago.
The year before the People’s High Court released its decision on Viagra, the State Council issued its Outline of China’s National IP Strategy. If you look at China’s IP goals for the next 5 years (Beatrice: Article 7 of the English version provided) you will see that –first and foremost– the government wants to cultivate domestic IP. In other words, they are looking to foster Chinese innovation.
Moreover, Gilead’s Viread drug faces a particularly difficult social challenge. However one might feel about the validity of the patent, we are talking about the treatment for a disease that– as you pointed out – stands to cripple the Chinese healthcare system. Regardless of how one might feel about protecting the rights of the patent holder, when a state is responsible for providing healthcare to a third of the world’s chronic Hepatitis B sufferers one can see why it might want to cultivate a steady supply of domestically controlled medicine for its people.
Beatrice Sze: Where is compulsory licensing in this story? Why do you think Aurisco went straight for infringement-invalidation rather than design-around then compulsory licensing?
Dr. Li: The reality is the Chinese government has not actually issued any compulsory licenses to date (not even during the height of SARS outbreak in 2003). For Chinese generic drug manufacturers, the cost of infringement-then-invalidation is currently much lower than manufacturing and applying for a compulsory license.
Part of the problem is that the process is still very complicated and it takes about three years to go from application to approval by the state. Even after approval, companies will still have to pay licensing fees. So Aurisco probably adopted this strategy to maximize its drug’s time on the market while minimizing its legal costs.
That said, Chinese language news sources indicate that Aurisco plans to apply for compulsory licensing after the patent has been invalidated. If it does so, it will be interesting to see how quickly the license is granted given the importance of this drug to the Chinese market and Beijing’s current IP Strategy.
Beatrice Sze: What would you say to foreign innovators looking to enter China’s pharmaceutical market?
Dr. Li: To foreign innovators looking to establish pharmaceutical IPRs in China I would say: do not be discouraged. You may experience more resistance from SIPO given Beijing’s current IP Strategy but if the Viagra case teaches us anything, it is that the Chinese government can be persuaded to honor patents if they are well-drafted and cover truly novel and inventive subject matter.
Beatrice Sze: So it sounds like good advocacy made on behalf of good patents can still succeed in the Chinese legal system.
Dr. Li: Yes, I’d agree with that statement.
Beatrice Sze: Thank you for your time, Dr. Li.
Dr. Li: A pleasure, as always.
Dr. Yahong Li is an Associate Professor and Deputy Head at the Department of Law at HKU. She is also an Associate Director at HKU Technology Transfer Office. Read more of Dr. Li ‘s research in her book “Imitation to Innovation in China: the Role of Patents in Biotechnology and Pharmaceutical Industries” (Edward Elgar, 2010).
Beatrice Sze is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.
With thanks to HKU’s Chi Shan for her assistance in searching for primary sources at SIPO and within the Chinese court system.
Unfortunately at this time not all courts decisions or patent prosecution rulings are made publicly available by the PROC.