References & Cases

Achievement | Supporting the Client to Invest in a Pharma R&D Company

The pharmaceutical industry has attracted the attention of capital investors for many years. Most recently, Chinese Pharma R&D has attracted increasing attention from domestic as well as global investors. In 2020, Mr. Xiang Tang (Attorney-at-Law) has facilitated a case where his (international) client was looking to take shares in a Chinese innovative pharma R&D company (the “Target Company”). Mr. Tang took the lead in this deal and, together with his team colleagues, provided legal services, including drafting Letter of Intent, conducting legal due diligence, assisting the client to negotiate and coordinating with other external advisors.

The Target Company's main business is the independent R&D of innovative drugs for the treatment of tumours, including lung cancer, glioma and breast cancer, with a particular focus on the development of small molecule targeted drugs for brain tumours, which are clinically scarce. Due to the unique characteristics of the pharmaceutical industry, the investigation and analysis of the Target Company's qualifications and business model is one of the main focuses of the entire legal due diligence process.

An overview of the Target company's business model is shown below:

After clarifying the business model of the Target company, it is necessary to further verify whether it has the relevant qualifications and fulfilled the relevant obligations. Under the current drug registration process, a drug needs to go through pre-clinical studies, clinical trials and new drug marketing approval from drug screening to marketing. Among them, pre-clinical studies include the discovery and confirmation of drug targets, synthesis and screening of compounds, pharmacological research, pharmacological and toxicological research, and development of formulations, etc. The clinical trials include Phase I, II and III trials. China's current laws and regulations make specific provisions for the different stages mentioned above, for example:

Pre-clinical studies

1. The commissioning party is responsible for the study materials used to file for registration [1] and the holder of the drug marketing licence is responsible for the non-clinical study of the drug[2] and the research institution must comply with the relevant provisions of the Good Laboratory Practice for Non-Clinical Laboratory Studies.
2. For units actually engaged in drug non-clinical safety evaluation studies, drug non-clinical safety evaluation studies should be conducted at institutions certified under the Good Laboratory Practice for Non-Clinical Laboratory Studies. [3]

Clinical trials

1. Drug clinical trial institutions are managed by filing, and applicants should select drug clinical trial institutions that have been filed in the "Drug Clinical Trial Institution Filing Management Information Platform" to conduct drug clinical trials. [4]
2. The holder of a drug marketing license shall be responsible for the clinical trials of the drug. [5]

New drug marketing approval

1. For drugs to be marketed in China, they shall be approved by the State Council drug supervision and administration department and obtain a drug registration certificate; except for Chinese herbal medicines and Chinese medicinal tablets which are not subject to approval and administration. [6]
2. The holder of a drug marketing licence is responsible for the safety, efficacy and quality control of the drug during the whole process of drug development, production, operation and use in accordance with the law. The legal representative and the principal person in charge of the holder of a pharmaceutical marketing licence shall be fully responsible for the quality of the pharmaceutical product. [7]

New drug R&D is a high-risk, high-investment and high-reward industry, characterised by long initial time, high investment and low success rate, as well as the need to be subject to strict supervision and management. Therefore, the investigation of new drug R&D companies also involves multi-faceted and multi-level comprehensive research, and has a high degree of complexity.

1. Article 49 of the Good Laboratory Practice for Non-Clinical Laboratory Studies.
2. Article 30 of the Pharmaceutical Administration Law of the People's Republic of China.
3. Article 10 of the Measures for the Administration of Drug Registration issued by the State Food and Drug Administration.
4. Article 19 of the Pharmaceutical Administration Law of the People's Republic of China, and Article 30 of the Regulations for the Implementation of the Drug Administration Law of the People's Republic of China.
5. Article 24 of the Pharmaceutical Administration Law of the People's Republic of China.