CHINA Trends and Developments Contributed by: Min Zhu, Ya-ling Gon, Yang Gu, Chai Lu, Ying Li and Shiye Yuan, Han Kun Law Offices
Corresponding to the trend of increased patent industrialisation, the pharmaceutical industry in China completed 102 transfer and licensing deals in 2024, with a total upfront payment of USD3.16 billion and a total transaction value exceeding USD51.1 billion. Judgments in pharmaceutical patent infringement litigation with significant impact In 2024, China’s Supreme People’s Court deliv- ered a landmark judgment in a patent infringe- ment case involving sitagliptin metformin tab- lets. The Court clarified that if a generic drug manufacturer submits an application to the NHSA to include its generic drug in the national medical insurance catalogue during the patent protection period of the original drug, such an act is not considered an offer to sell. Therefore, this behaviour does not infringe upon the patent rights of the original drug manufacturer. In contrast, in 2023, the Supreme People’s Court rendered a judgment in a patent infringement case involving the online listing for sale of vilda- gliptin tablets. The Court held that the act of a generic drug company participating in the cen- tralised drug procurement bidding process and listing its products online during the valid pat- ent term of the original drug constituted an offer to sell, which infringed upon the original drug manufacturer’s patent rights. The ruling explicitly stated that during the patent protection period, generic drug companies may not engage in cer- tain sale preparation activities, such as bidding, without the permission of the patent holder. The judgments in these 2023 and 2024 Supreme Court rulings together serve as typical cases to help clarify legal boundaries and reduce infringe- ment disputes arising from legal ambiguity. They also demonstrate a legislative goal of balancing intellectual property protection for innovative
pharmaceutical companies and market access opportunities for generic drug companies. Tax Concerns As one of the most encouraged sectors in China currently, healthcare and life sciences compa- nies may enjoy a wide range of tax incentives, mainly including the following preferential tax treatments. High and new technology enterprises (HNTE) The HNTE policy offers a reduced 15% corporate income tax rate (as opposed to 25% for normal enterprises). Many life sciences companies find it relatively easy to qualify for this tax incentive, although certain others may encounter difficul- ties, particularly Chinese subsidiaries of MNCs, due to a lack of People’s Republic of China or PRC-generated IP. Over the last few years, more pharmaceutical companies, particularly biotech- nology start-ups, have devoted themselves to developing first-in-class or best-in-class drug products, which places them in a better posi- tion to enjoy HNTE tax incentives. However, in 2024, there were some notable instances where life sciences companies (includ- ing listed companies) had their HNTE status withdrawn due to compliance issues and other factors. This serves to underline the importance of legal compliance for companies that obtain this tax incentive. R&D expense super deduction The PRC’s R&D expense super deduction policy is similar to those of many other jurisdictions, which allows an extra deduction for qualified expenditures. Life sciences companies are qual- ified to enjoy a 100% extra deduction by being recognised either as “manufacturing enterprise” or “small and medium technology enterprise” .
91
CHAMBERS.COM
Powered by FlippingBook