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Chinese compulsory licensing law comes into effect

Will allow production of generic drugs for domestic and international markets

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Changes to China's intellectual property rules have come into effect that look set to allow the production of cheap generic versions of patented drugs.

The Measures for the Compulsory Licensing for Patent Implement law is of especially increased increased for the pharmaceutical industry because these generics could also be exported outside the country.

China's State Intellectual Property Office can now issue compulsory licenses to eligible companies, giving them the right to produce generic versions of patented drugs.

They can do this during state emergencies, 'unusual circumstances', or if it is in the public interest according to the law, which came to effect on May 1, 2012.

If "reasons of public health" are at stake, the companies can also ask to export these medicines to other countries, including members of the World Trade Organization, according to a report by Reuters.

One of the first targets for the new law, even if only as a strong-arm negotiating tactic, is Gilead's HIV drug Viread (tenfovir), which the government has been struggling to provide. China has 740,000 people who have HIV and in 2009 some 26,000 people died from AIDS. 

Until now the Chinese picture for the industry has largely been framed in terms of the opportunity it presents for sales to mitigate losses in Western, developed markets.

GlaxoSmithKline for one has been increasing its field force in China at a time when the company and others in the industry, most recently Lundbeck, are cutting back in more developed markets.

Recent figures from Cegedim found that for the first time pharma companies have more sales reps in China than they do in the US.

The industry has also been keen to realise the potential of the Chinese generics market, on its own terms, with Lilly, AstraZeneca and others lining up branded generic deals.

The issue of compulsory licensing, government intervention that allows drug patents to be overturned, has long been a threat to the industry but recently seems to be gathering momentum.

Earlier this year Bayer's cancer drug Nexavar (sorenfinib) was hit by a compulsory licence in India, the first time one has been used in that country.

The patent office, which describes a compulsory licence as an "involuntary contract between a willing buyer and an unwilling seller imposed and enforced by the State", allowed local firm Natco Pharma to sell a version of Nexavar.

In taking this decision it ruled that Bayer had not made its drug available to the public at a "reasonable affordable price".

18th June 2012


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