Investing in personalised health in

Personalised healthcare is reshaping the pharmaceutical industry on a global scale. China, in particular, is embracing this change with its Healthy China 2030 strategy and its drive to reform the medical and healthcare landscapes. Investments reflecting the core principles of the strategy and which facilitate the implementation of personalised healthcare are likely to be met favorably. However, regulatory reform also needs to align to this desire. What are the Personalised key factors that should be front of mind for business leaders and foreign healthcare investors in the sector in China?

Chinese regulation and law strives to keep so, implement a structure for sharing big data up with technological change across relevant governmental departments and public institutions. Innovation in the healthcare market is increasing at a rapid rate, with the Chinese regulatory framework ••The Chinese Food and Drug Administration responding accordingly. In particular, regulation is (“CFDA”) in October 2017 releasing for public changing specifically to address new technologies consultation the “Draft Amendment of the Drug (eg, AI) and big data that are key considerations to Administration Law” and the “Draft Administrative companies adopting personalised health approach. Measures for Drug Registration”.

This shift in regulation can be seen in: These consultation documents show that it is a ••The State Council in June 2016 issuing "Opinions priority of the Chinese government to reform the rules on Promoting and Standardizing the Application governing the approval of new medicinal products in and Development of and Medical China, particularly where those new products result personalisation of Big Data". This seeks to establish a regulatory in enhanced innovation in China. healthcare either to a framework for sharing and protecting big data in Even though the State Council's Opinion and the specific individual or the healthcare and medical sectors, and in doing CFDA's public consultation on its proposed new rules a group of patients 02 INVEST IN THE FUTURE OF PERSONALISED HEALTHCARE IN CHINA

Precision do not directly affect the existing regulations The rapidly evolving for foreign investment, what they demonstrate is the government's support of the growing Chinese healthcare Chinese pharmaceutical and healthcare market, supported by markets. Given this, we expect that the China actively embracing Chinese government will implement various measures to promote the openness of the technology and a smart Chinese pharmaceutical and healthcare healthcare approach, markets and to facilitate foreign investment, gives rise to a number with the ultimate aim of utilising new of key opportunities technologies and big data to improve industry practice and healthcare in China. In parallel, and considerations for data protection and IP laws are also evolving to foreign investors. account for these technological advances and increased use of data.

Below are some key factors that need to be considered by business leaders and foreign investors interested in the pharmaceutical sector and personalised . the tailoring of medicine or therapies Pharmaceutical Regulations to individuals or groups of individuals Patent transparency Protection of sensitive, personal data Although still subject to public consultation is critical through a soliciting opinion, the Chinese The use of precision in many Government is intending to implement instances will require the handling of patients' Smart healthcare changes under which the Chinese regulatory sensitive, personal data. To the extent that system will adopt a system of "patent linkage" this needs to be disclosed to the CFDA (or (ie, the CFDA will consider patent rights when other government agency) as part of the approving medical products). In this new requirements for marketing approval or system, the party seeking approval must not market access, compliance at all times with only disclose to the CFDA all patents that may the relevant data protection laws and rules be relevant to their medical product, including (ie, the Cybersecurity Law and Personal the status of each patent, but also notify the Information Security Specification) will need to relevant patent holder of their application. As be carefully considered. a consequence, rights holders will be put on notice of potential infringement and be able M&A regulation – foreign to respond accordingly. Furthermore, upon investment restrictions confirmation from the judicial authorities that patent infringement proceedings have been Investment access considerations the use of technology in commenced, the CFDA will stay the approval Amongst other things, the latest restrictions the improved healthcare process for a period of up to 24 months. governing foreign investments in China (the delivery or quality of life Regulatory protection for Special Administrative Measures for Access early entrants of Foreign Investments (Negative List), 2018 Edition), prohibit direct foreign investment in In the same soliciting opinion, similar to the processing of traditional Chinese medicine several other jurisdictions, China is intending decoction pieces and the production of to grant periods of regulatory protection Chinese patent medicines with a secret ranging from 1.5 to 10 years under which formula. The restrictions do permit indirect clinical data submitted for a new medical investment in medical institutions by product cannot be used by third parties permitting investment in joint ventures to seek approval of generic or biosimilar involving Chinese entities (either through medicinal products that they have developed shareholdings in such joint ventures or through without the consent of the rights holder in the contractual agreements) that have been data submitted for the original product. approved by the Ministry of Commerce (MOFCOM) or one of its local branches. Foreign investment in other areas of HERBERT SMITH FREEHILLS 03

healthcare only requires the investment to be Law was issued which imposes strict recorded with MOFCOM by the completion of measures that must be complied with. the relevant online filing. As a consequence, it Furthermore, on 11 April 2017 the relevant = 1 BILLION PEOPLE is important that all foreign investors consider Chinese authority (The State Internet and comply with the applicable foreign Information Office) published specific investment restrictions. measures following the implementation of that law in relation to the transfer of data outside M&A consideration – intellectual of China. These measures, the Measures on property rights Security Assessment of Cross-border Transfer of Personal Information and Important Data IP issues arising from the (Draft for Soliciting Opinion), impose stringent development of personalised obligations in relation to transferring data IN 2015, CHINA’S health products outside of China. Foreign investors need POPULATION WAS Personalised health, especially smart to account for these restrictions when ESTIMATED AT 1.4 considering their commercial aims and BILLION PEOPLE healthcare, heavily relies upon data and computer systems to provide personalised whether the restrictions would preclude diagnosis and treatment. This may require them from globalising any product or service pharmaceutical companies to enter into developed in China. collaborations, joint ventures or use specialist The rapidly evolving Chinese healthcare contractors, such as software companies, to market, supported by China actively develop the required IT systems, software and embracing technology and a smart healthcare infrastructure. It is critical that the ownership approach, gives rise to a number of key and ability to use all relevant IP rights is AVERAGE LIFE opportunities and considerations for foreign properly understood as part of the due EXPECTANCY OF investors. Keeping abreast and responding to diligence process to ensure that these are 76.5 YEARS these legal and regulatory changes will be vital acquired as part of the transaction. to ensuring successful investments in China or Availability and limits of IP protection collaborations with Chinese entities.

china GDP Unlike most existing medicinal products, To hear more from us on this topic, for which patent rights represent the most please subscribe for updates here or at valuable IP right, a more diverse set of IP www.hsf.com/futureofpharma rights is likely to be relevant to the protection of personalised health products (eg, database rights and copyright in software). As a consequence, it is important to understand the availability and limits of each of those $ rights, particularly where these relate healthcare 5.9% to emerging technologies (eg, Artificial Intelligence) where the Chinese IP law is HEALTHCARE evolving to deal with these new developments. SPENDING REPRESENTS 5.9% OF CHINA’S GDP M&A consideration – data protection AT $640 BILLION Cybersecurity is critical to data protection and creates a higher cost of entry Personal, sensitive data (medical and consumer) is key to the personalised health market. Given this, it is vital to properly consider cybersecurity issues and consumer protection concerns as part of the due diligence process. In 2016, the Cybersecurity 2020 HEALTHCARE EXPENDITURE WILL DOUBLE BY 2020 TO Key contacts AROUND $1.1 TRILLION Karen IP Weili Zhong Partner Associate Corporate Corporate T +86 10 6535 5135 T +86 10 6535 5105 [email protected] [email protected] HERBERTSMITHFREEHILLS.COM

BANGKOK JAKARTA PARIS Herbert Smith Freehills (Thailand) Ltd Hiswara Bunjamin and Tandjung Herbert Smith Freehills Paris LLP Herbert Smith Freehills LLP associated firm BEIJING PERTH Herbert Smith Freehills LLP JOHANNESBURG Herbert Smith Freehills Beijing Representative Office (UK) Herbert Smith Freehills South Africa LLP RIYADH BELFAST KUALA LUMPUR The Law Office of Nasser Al-Hamdan Herbert Smith Freehills LLP Herbert Smith Freehills LLP Herbert Smith Freehills LLP associated firm LLP0010119-FGN BERLIN SEOUL Herbert Smith Freehills Germany LLP LONDON Herbert Smith Freehills LLP Herbert Smith Freehills LLP Foreign Legal Consultant Office BRISBANE Herbert Smith Freehills MADRID SHANGHAI Herbert Smith Freehills Spain LLP Herbert Smith Freehills LLP BRUSSELS Shanghai Representative Office (UK) Herbert Smith Freehills LLP MELBOURNE Herbert Smith Freehills SINGAPORE DUBAI Herbert Smith Freehills LLP Herbert Smith Freehills LLP MILAN Studio Legale Associato in association with SYDNEY DÜSSELDORF Herbert Smith Freehills LLP Herbert Smith Freehills Herbert Smith Freehills Germany LLP MOSCOW TOKYO FRANKFURT Herbert Smith Freehills CIS LLP Herbert Smith Freehills Herbert Smith Freehills Germany LLP NEW YORK Herbert Smith Freehills New York LLP Herbert Smith Freehills © Herbert Smith Freehills LLP 2018 3156O /200818Invest in the Future of Personalised Healthcare in China _d8