Traditional Chinese Medicines (“TCM”) account for 30 to 50% of the total consumption of medicine in China. Many Chinese pharmaceutical companies will possess in their product portfolio TCMs.
Foreign investors wishing to acquire Chinese pharmaceutical companies should, in most cases, be fully aware of the newly promulgated Administrative Provisions on Registration of TCM by the State Food and Drug Administration (“SFDA”) of China on January 7th 2008.
The new Provisions tend to stimulate investments into the industry and create a favorable regulatory environment for large-scale companies and high-tech companies. At the same time, Investors should be aware of certain restrictions set by the current foreign investment policies. For example, investments in cultivation of medicinal plants are welcomed but limited to joint ventures. Further, investments in manufacturing TCMs with some traditional Chinese preparation techniques and in processing of TCMs with ingredients regulated by Regulations on Conservation and Management of Wild Chinese Medicinal Material Resources remain prohibited. Those restrictions shall be clearly assessed at an early stage of any acquisition process.
The Provisions reduce time and costs development process for certain TCM drugs and sets out higher barriers for TCM generics.
1. Under the new regime, new TCM drugs, TCM drugs only made of a plant’s effective part and TCM drugs with recipe based on a classic ancient Chinese formula, enjoy simplified clinical trial requirements, eased sampling measures and/or fast approval track. The approval track which normally takes 2 years may be reduced to 1 year.
Foreign investors should be aware that usually, only large-scale companies or companies with high-tech equipments and advanced technologies can develop such kind of TCMs. Therefore, the above benefits will mostly be granted to large-scale companies.
2. The Provisions set up stricter requirements for TCM generics. Whereas the bio-equivalency method use to be sufficient to prove that a generic drug is identical to the original, a TCM generic applicant now also has to prove that all indicators during the drug creation process are identical (except for chemical drugs). In case such indicators are not identical, the generic application is subject to costly clinical trials.
As processing indicators are generally kept confidential, the new rule provides strong protection to original products makers and disfavors small-scale enterprises engaged in the activity of generic drugs which have no practical or financial mean to be informed of such indicators.
These new rules follow the Chinese government’s commitment to boost this industry by, among others, encouraging foreign investment in new analytical techniques, extraction technologies and equipment for the development and manufacturing of TCM made of a plant’s effective parts.
In addition, according to Regulations on Protection of TCMs enacted sine 1992, some TCMs with particular effectiveness in curing serious diseases are entitled to certain degree of market access ‘exclusivity’ of 7-30 years depending on different situations. (It should be noted that such ‘exclusivity’might not only be given to just one producer. According to the Regulations, any producer meeting certain requirements can apply for a ‘Certificate for Protected TCM’ and then share the ‘exclusivity’. In practice, it’s not unusual that several producers produce the same ‘protected’ TMC at the same time since, legally speaking, there’s no number limit for granting the Certificate for each product).
At the same time, the Provisions tend to address the TCM market fragmentation issue, organize a better quality control, set out integrated standards, and improve process and extracting conditions.
With this new Provisions, foreign investors will see more Chinese companies engaged partly in TCM looking for consolidation to survive.
CMS Cameron McKenna and CMS Bureau Francis Lefebvre are separate firms operating within the CMS Association and are not responsible for each other's acts or omissions
