When signing a biotech licensing deal in China, experts say that pharma’s patent attorneys need to understand the geopolitical risk of the BIOSECURE Act.
Heading to China to find a new drug prospect? Better bring a good patent attorney with you.
As the region has become the go-to destination for pharmaceutical partnerships, experts are sounding the alarm about the many patent issues that can arise during the dealmaking process. These may not just be litigation-related, either. With Washington lawmakers’ increasing focus on China’s influence on the American drug supply via the BIOSECURE Act, companies could find themselves in a world of trouble if they do not effectively cross the t’s and dot the i’s.
“People first became aware of [supply chain security] during the COVID pandemic,” said Jonathan Barnett, an intellectual property lawyer who co-leads the Eira Initiative, a life sciences policy initiative at the Berkeley Policy Institute, and is also a professor at the USC Gould School of Law. “The People’s Republic of China has a documented history of weaponizing supply chain positions in markets where they’re dominant, and I think that’s the underlying concern coming out of D.C. about these deals.”
Through the BIOSECURE Act, the U.S. government is creating a list of Chinese manufacturers that companies should not use. Licensing deals being signed between multinational pharma companies and Chinese biotechs almost always involve assets ultimately destined for the U.S. market that are not yet at the manufacturing stage. But Barnett flagged a downstream risk that must be addressed upfront.
The Chinese biotech may have used a specific Chinese contract research or manufacturing organization for the initial manufacturing of the clinical trial test product or active pharmaceutical ingredients (APIs). If that company is later banned by the U.S. government, a pharma could be forced to scramble to find a new manufacturer—and possibly face litigation for taking the product elsewhere.
“Pharma products are uniquely reliant on a strong IP envelope protecting that product,” said Barnett. “A businessperson needs to look past, and a lawyer needs to look past, the pure business or legal issues, and pay close attention to that D.C. conversation.”
Same but different
Doug Bucklin, a patent attorney with Volpe Koenig who leads the firm’s Life Sciences and Chemistry practice group, told BioSpace that a good patent attorney will scrutinize the IP package from its roots, ensuring protections in all the regions the company intends to be in.
“You want to make sure that your application from the foundation was prepared properly,” Bucklin said in an interview.
The U.S. and China have similar patent rules, but not identical. For instance, if an inventor in China working for a company creates something in the course of that work, the company automatically owns the IP. In the U.S., it’s flipped: the inventor owns it first and must transfer the rights to the company.
These foundational but critical points are the easiest to hash out in a deal process. But the specifics of Chinese patent law and IP are becoming more important to understand inside and out, particularly as the BIOSECURE Act comes into force, Bucklin said.
The act bans the use of certain Chinese companies for any government contract, dubbing them a biotechnology company of concern, or BCC. Bucklin pointed out that this may not appear to directly implicate a licensing deal, but all pharmas do some work with the government, whether through Veterans Affairs programs, Medicare or Medicaid, or research funding. If an unrelated licensing deal has some tie to a company on the banned list, the government could pull funding without much notice.
“I’m not certain of how that will play out, but certainly, if you produce a therapeutic agent, and you have a CRO or CDMO that’s doing the workload on that biologic, and they become a BCC, you’re going to have to transition away from that company,” Bucklin said. “And the transition away from that company might be problematic.”
Those companies could own some underlying data important to the drug product, or the technical know-how to manufacture it. The Chinese provider may not be keen to transfer any of that over.
“You have to outline who’s going to own that data and how it’s going to transfer,” Bucklin said. But, he added, China may bar the transfer of those kinds of trade secrets, too. So there’s a very fine line to walk.
In a hypothetical situation, Bucklin explained that a company may arrive at the time to manufacture large amounts of a very complex biologic antibody product. A patent will cover the antibody itself but not the manufacturing skill, particularly how to make it at scale so that it can be used as a therapeutic. Typically, the manufacturing company will know the standard operating procedures to arrive at the biologic cell lines that create the therapeutic.
“If that company becomes a BCC, then you might be shut off from doing any more work with that company,” Bucklin said.
The pharma would be forced to find a new CRO or CDMO to do that work, which would have to start from scratch to develop the know-how. In the pharma business, time is money. This could mean a significant delay. Not to mention that the original CRO or CDMO could sue.
Risky business
Barnett said he doesn’t believe that U.S. lawmakers have any interest in banning innovative products from the market, but are trying to walk a thin line between protecting U.S. consumers while ensuring that the drug supply does not become woven too tightly to China’s manufacturing sector.
It’s a point made by BIO CEO John Crowley last month at the industry group’s annual convention: “We need to make sure … that we don’t fall into the trap of what they’re trying to create, which are these inescapable dependencies.”
The act rose out of concern that a hugely important pharmaceutical could someday be reliant on an American adversary, Bucklin explained. “The BIOSECURE Act was meant to say, well, let’s wean ourselves off of that reliance.”
That certainly complicates deals with the nation, he acknowledged, but the “BIOSECURE Act isn’t going to invalidate patents, at least I don’t see how it is written to do that right now.”
Barnett said the deals wouldn’t be happening if there weren’t truly innovative medicines being developed in China. The nation’s biotech sector has risen thanks to a massive, years-long and meticulously planned investment by the Chinese government. But there have also been some documented cases of IP theft by Chinese nationals from American companies along the way, according to Barnett.
Chinese-born scientists are also returning after successful turns at U.S. universities, hungry to start their own companies at home. That was the case with Akeso, which has now licensed a drug to U.S. biotech Summit Therapeutics. That’s a natural and desired occurrence in the science ecosystem—allowing the exchange of scientific knowledge.
“There’s innovation coming out of China, and so the question at the business level is how to take advantage of that while understanding the mix of business, legal and geopolitical risk,” Barnett said.
U.S. research institutions commonly partner with foreign ones, including in China. This has become an increasing focus among D.C. lawmakers, Barnett said.
“There can be productive synergies between us and Chinese researchers on these projects, but depending on the nature of the project, it can in some cases raise national security concerns due to the nature of the U.S.-China relationship at the moment,” Barnett said.
As part of China’s push to become a biotech leader, the government there also made changes to IP laws to encourage investment and protect homegrown inventions, Barnett said.
“Private investment in biopharma among all industries is uniquely reliant to a significant extent on strong IP protection, and I think China has recognized that and increased their IP protections accordingly,” he said.
What’s even more unique about the biopharma industry is that the drug products are almost always developed with the U.S. market in mind. That may be changing to an extent as China opens up as a major market, but the U.S. is still easily the most lucrative.
“All international pharma development relies on the U.S. market for the very simple fact that the U.S. historically has not had price controls,” Barnett explained. Other markets are layered into any licensing deal and plans to launch in China would similarly be hashed out during that process.
Bucklin is not aware of any recent push in China to match the BIOSECURE Act, but the country has always been protective of IP developed there.
“Walking in, any company needs to make sure that locally in China they have the authorization and the legal standing to do what they intend to do,” Bucklin said.
