2020 was far to be a bad year at least for the sector of life science, pharma and healthcare in China. With the huge domestic market in need of drugs and medical devices products and healthcare services as well as international demands due to Covid, Chinese stakeholders have passed a very dynamic year.
In the past 20 years, European enterprises have invested around EUR 140 billion into the Chinese market, of which the investments in the sector of health and biotech amounted to around 10%. The fresh new EU-China Comprehensive Agreement on Investment (“CAI”), which was in principle reached at the end of 2020 but is still to be finalized and ratified in 2021, may bring new chances to European investors. On the other way around, in 2020, Europe and France strengthened their respective legal framework with regard to screening of non-EU inbound investors active in biotechnology and healthcare-related investments.
From the standpoint of Chinese market, what kinds of business opportunities exist or will emerge and what are the general local legal framework to be aware of?
Drugs and medical devices
Drugs and medical devices manufacturing is an open market in China, however, except big international groups, new market players may find it very difficult to start manufacturing of drugs and medical devices in China. On the market the often-seen business model is that Chinese drug manufacturers negotiate and get license of foreign laboratories (so called license-in business), have the drugs registered as foreign drugs in China and act as distributors of such drugs before the patent expires. The drugs will at a later stage be converted into domestic drugs and produced in China.
In this business, foreign patent holders need to have a clear strategy and idea about the protection of IP in China, for instance, if the patent protection period is approaching the end, whether other strategy should be put into use, such as patents on pharmaceutical preparations, marginal products and formulation etc., data exclusivity, monitoring period exclusivity etc.. The new revision of the patent law will even grant the possibility of extension of certain types of patents.
Moreover, the recent revision of relevant laws and regulations in 2019 and 2020 also formalized the drug MAH System, which opens the door for Chinese drug manufacturers to become marketing authorization holders while still using foreign resources prior to the local production.
Marginally but still worth of meaning is the dynamic capital market related to the sector of pharma. The Star Market in China using so-called filing instead of approval system is attracting numbers of companies in the pharma sector to go IPO. These companies have been sought by all kinds of funds especially those guidance funds of local governments. For foreign investors involved in such IPO process, this may offer a good opportunity to liquidize their assets originally in form of intellectual property.
Private hospitals are not fully open to foreign investments. According to the famous negative list, a foreign investor has to set up a joint venture with a Chinese investor to engage in healthcare services, such as hospitals.
Nevertheless, Under the CAI, China will offer new market opening by lifting joint venture requirements for private hospitals in key Chinese cities, including Beijing, Shanghai, Tianjin, Guangzhou and Shenzhen.
E- healthcare services
China is already on a fast-track in terms of digitalization. Facing the Covid pandemic, the central and local governments push further the establishment of E-healthcare infrastructure and practices.
Until now, relevant laws and regulations allow mainly three types of E- healthcare services, i.e. Internet hospitals, Internet diagnosis and treatment, as well as telemedicine. In addition, health-related platforms providing preliminary disease consultation and advice (i.e., no definitive diagnosis or treatment plan is given, and no prescription is issued), registration appointment services, etc. are also flourishing.
Given that the aforementioned three main types of E- healthcare services are a combination of hospital services and Internet services, relevant market access requirements are to be respected. Regarding the former, as mentioned above, the joint venture requirements are to be gradually lifted under the CAI, while as to Internet services provision, it is subject to a number of shareholding restrictions and license restrictions for value-added telecommunications services. Value-added telecoms licenses relating to the Internet healthcare projects may involve different licenses, such as the ICP license and/or EDI license, for which foreign shares should not exceed 50%. Nevertheless, under CAI, China also agreed to lift the investment ban for cloud services and computer services. More details are to be expected with the progress of finalization of CAI.
It is to be further noted that China’s legal framework on cyber and data security as well as privacy protection is evolving very fast. Besides the 2017 Cybersecurity Law, new drafts of Data Security Law and Personal Information Protection Law have already been published for solicitation of public opinions and are expected to be promulgated in 2021 or 2022. Foreign invested companies in the healthcare sector will have to pay special attention to the compliance issues under these laws and regulations given that healthcare information is qualified as one of the key information infrastructures, and the data of patients are normally sensitive personal information.