Answers - Legal

What the Law Says

In China, neither domestic companies nor Foreign Invested Enterprises may own land outright; instead they own Land Use Rights. There are two kinds of Land Use Rights – Allocated and Granted. In comparison with W

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

estern common law concepts, Allocated Land Use Rights are in some way similar to leaseholds, and Granted Land Use Rights are in some ways similar to life estates.

Allocated Land Use Rights are generally provided by the governmen

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

t for an indefinite period (usually to state-owned entities) and cannot be pledged, mortgaged, leased, or transferred by the user. Furthermore, Allocated land can be reclaimed by the government at any time.

Granted Land Use Right

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

are provided by the government in exchange for a grant fee, and carry the rights to pledge, mortgage, lease, and transfer within the term of the grant. Land is granted for a fixed term – generally 70 years for residential use, 5

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

0 years for industrial use, and 40 years for commercial and other use. The term is renewable in theory (although no foreign investor has been in China long enough to find out how this works in practice). Unlike the usual case in

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

estern nations, Granted land must be used for the specific purpose for which it was granted.

Allocated Land Use Rights may be converted into Granted Land Use Rights upon the payment of a grant fee to the government. Even Granted

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

Land Use Rights are subject to expropriation by the government under unusual circumstances (in exchange for fair compensation similar to the eminent domain power in the US). This state of affairs tends to work in favor of the for

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

eign investor – land granted to Foreign Invested Enterprises is seldom expropriated, but agricultural land is often expropriated in order to make room for foreign invested projects.

How the Law Applies to Foreign Invested Enterpr

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

ses

Most foreign invested Joint Ventures obtain Land Use Rights from the Chinese party. A common problem is that the Chinese party holds only Allocated Land Use Rights for the land it occupies (be looking for this if the Chinese

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

party is a state-owned entity). In this case, the authority to transfer the Land Use Rights is vested in the local Land Administration Bureau, and the Chinese party will not have the right to transfer it to the Joint Venture.

Ne

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

ertheless, if the Joint Venture can purchase long-term Granted Land Use Rights from the Land Administration Bureau through a land use grant contract, the Joint Venture will then be able to mortgage the land or transfer it to a thi

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

rd party. Keep in mind, however, that vacant land must be 25% developed before Granted Land Use Rights can be acquired. Do not attempt to acquire Granted Land Use Rights if you do not intend to develop it within a short time, bec

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

ause even if the land qualifies as 25% developed and thus eligible for a grant, it can still be classified as “vacant”, and vacant land can be reclaimed if development is not begun within 2 years of transfer.

A second option wou

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

d be for one of the investors to obtain Granted Land Use Rights and then lease the land to the Joint Venture. However, vacant land cannot be leased to a third party (such as a Joint Venture or other Foreign Invested Enterprise) b

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

y the grantee. It is also worth noting that a lease needs to be registered in order to protect the leasehold against potential competing claims.

Thirdly, if you are willing to settle for Allocated Land Use Rights, the Foreign Inv

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

sted Enterprise could simply have the land allocated to it by the local Land Administration Bureau.

In the case of a Joint Venture, a fourth option would be to have the Chinese party contribute its Allocated Land Use Rights to th

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

e Joint Venture as part of its capital contribution, in which case the Chinese party would be liable for annual land use fees.

Another common problem is that the land and the building(s) on it are owned by different parties, crea

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

ting a potentially messy legal situation if all parties are not willing to cooperate.

Most importantly, it would be a good idea to require the Chinese party to prove the status of its Land Use Rights with documentary evidence bef

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

re applying for project approval. Further, pre-transfer due diligence should include a thorough environmental impact self-assessment (see the Glossary for details). Finally, keep in mind that payment and transfer of ‘title’ throu

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

gh public registration with the Land Administration Bureau cannot take place simultaneously – registration of land transfers will not be allowed unless a receipt for payment is submitted with the registration transfer application

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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