In addition to the standard opportunities associated with outsourcing, deals in Asia have an added benefit in terms of how a deal is structured. Companies are looking for risk-sharing deals. “Many multinational companies are looking to partner with a local company to help share more of the risk and reward of drug development,” according to Joshua Berlin, executive editor and senior publications manager for F-D-C Reports.
Often, this means having the Asian company develop a compound through proof of concept and then letting the multinational take over. “It’s a step up the value chain for companies in Asia, and they generally will have more favorable deal terms, because they are taking on more of the risk by funding some of the early-stage development.”
Another model that’s becoming popular involves virtual networks. Essentially, a firm will outsource a project to a local company, which then coordinates further outsourcing among a network of similar companies. The result is a network that forms and reforms around needed expertise. Virtual networks are being embraced by Merck, Eli Lilly, and others.
Perhaps the greatest concern for companies considering operating in China is related to intellectual property protection. Until relatively recently, Western companies did not file Chinese patents, feeling they were unenforceable. Today, the situation is getting better. “We’re advising our clients to file patents in China now,” Gillespie said. (See related article: Update on Patent Law Revisions in China on page 10.)
Although attorney Peng Chen, Ph.D., partner, Morrison & Foerster, reported that China is working to harmonize its intellectual property laws with those of the West, some significant differences remain. Therefore, it’s vital to understand the disparities between the Chinese patent and legal systems and those of the U.S. or EU.
There are three types of patents in China, according to Gillespie: the invention patent, which is similar to a U.S. utility patent; a utility patent; and a design patent. “Design patents don’t get examined. They’re really just a registration,” explained Dr. Chen, but this is the type of patent filed most often by Chinese companies. It takes less time to file and is being used to outmaneuver companies that neglect it in favor of filing invention or utility patents.
A European electrical components firm learned this the hard way. While the firm was awaiting review of an invention filing, a Chinese company filed a design patent. Consequently, the electrical manufacturer did not receive its patent, and the Chinese firm proceeded to develop it, winning the subsequent lawsuit. To put the danger into greater perspective, Chinese companies filed 253,675 design patents, versus the 13,993 design patents filed by foreign companies.