The innovation of patent auction service mechanism— interview with Li Zhonghua, vice president of China Technology Exchange

By Kevin Nie, China IP,[Patent]

Since the first patent auction in 2010, through three-year’s exploration and practice, China Technology Exchange (CTEX) has achieved positive results in the aspects of improving the trading system and rules, innovating the trading mechanism and models, cultivating market and etc., which have produced a good social influence and typical demonstration effect. Currently, CTEX has equipped itself with the ability to carry out normalized patent auction business.

Recently, centering on the ongoing project of “CTEX Patent Auction (Biopharmaceuticals Session),” China IP interviewed Li Zhonghua, Vice President of CTEX.

In his early years, Li Zhonghua had ever been occupied in scientific research work for nearly 10 years in Chinese University of Hong Kong, Radboud University Nijmegen and Tennessee University, and then worked on investment and financing of biological technology in the US. After returning to China in 2007, he once served as the deputy director of IP trading center of China Beijing Equity Exchange and president assistant of CTEX, and now served as the Vice President of CTEX. All the above experiences lent Li Zhonghua rich knowledge in the field of technology transfer as well as technology investment and financing.

Current situation of exchange in pharmaceutical field

China IP: Would you like to talk about the overall domestic situation of exchange and transfer of patent technology in pharmaceutical field?

Li Zhonghua: The pharmaceutical industry is a highly technology dependent industry. As majority of Chinese pharmaceutical enterprises lack R&D abilities, outsourcing technology has become the main source of product technology for Chinese pharmaceutical enterprises. Thus, the exchange of patent technology in pharmaceutical field is relatively active. But what worth noting is that as Chinese pharmaceutical market is mainly focusing on generic drugs, in comparison with the chemical pharmaceutical field, it owns less patent trading but a large number of wholesale trading. But the patent trading of technology and new crystalline types has been dynamic in recent years, and there are more patents and simultaneous trading combined wholesales with patents. Because of the increasing policy and financial support for new drugs’ R&D from Chinese government as well as the changes of market and administrative environment, the patent technology trading in Chinese pharmaceutical technology field will be increasingly dynamic.

China IP: In your perspective, what are the main problems in the process of technology trading in Chinese pharmaceutical field?

Li Zhonghua: The following problems are often found in the technology trading process in Chinese pharmaceutical field: firstly, Chinese pharmaceutical field still concentrates on the generic drugs and lacks high quality technology; secondly, it is hard to price and accumulate sufficient historical data, and moreover it is the marketing ability rather than the technology which serves as the main market driving force; thirdly, the trading behaviors lack standardization and good faith, which results in the difficulties in contract enforcement; and finally there exists gray area, i.e. kickbacks are often found during transactions.

China IP: Why has CTEX chosen Tianjin Institute of Pharmaceutical Research (TIPR) as a partner?

Li Zhonghua: We mainly take the following factors into consideration. First, TIPR, an important base for drug R&D in China, primarily engages in the pharmaceutical technology engineering and integrates closely with market. Besides, its transferred technologies have become the market flagship products for many well-known Chinese pharmaceutical enterprises and have high prestige in domestic pharmaceutical industry. Second, TIPR and CTEX have cooperated closely for a long time. The first cooperation project was on TIPR’s project of a new drug hydrochloride magni. Through innovating patent trading models, the technology project of “Longjia Tongluo Capsule” cooperated by TIPR and CTEX had set the highest trading price in Chinese trading of the similar drug class and also had ever been awarded as one of the top ten deals in Beijing property market. Third, TIPR attaches great importance to IP for a long time and possesses unique understanding to both the significance and competence of patent management, which is coincident with that of CTEX and is easy to reach a mutual beneficial and win-win cooperation.

Innovating and perfecting exchange mechanism

China IP: Compared with the patent auctions in other industries, what are the specificities of patent auction in terms of pharmaceutical technology?

Li Zhonghua: The characteristics of pharmaceutical industry determine that the number of pharmaceutical technology patents is relatively small and commercialization process is long with high risk and large investment. There are not many pharmaceutical technology transfer auctions in foreign trials. Compared with information industry, majority of Chinese pharmaceutical enterprises have not highly recognized the importance of patent because Chinese pharmaceutical market is dominated by generic drugs, which all make patent auction in pharmaceutical technology field much more difficult than that of in information technology field.

China IP: What mode does this patent auction session mainly adopt? What are the merits of this auction mode?

Li Zhonghua: This patent auction session is mainly in the way of network realtime quotation. In comparison with the traditional live auction, the network realtime quotation possesses numerous advantages: first, it has solved the geographic limitations of the traditional live auction, and allows the synchronization of bidding for buyers anywhere; second, it has also solved the problem of making decision within short time in live quotation by selecting the quotation over a period of time, so that bidders can take their time to analyze and quote more rationally for complex bids like patents; and third, it has provided good anonymity protection mechanism.

China IP: On the basis of concluding experience and lessons, in order to achieve satisfactory result, what adjustment and preparation did CTEX do before this patent auction?

Li Zhonghua: We have adjusted and strengthened primarily from three aspects. The first is to intensify the patent analysis and evaluation work and analyze the specifications and value points of patent bids so as to facilitate the preliminary evaluation of bidders. The second is to recommend specifically the patents for targeted clients by analyzing the product structures of potential bidders according to the features of the patents. The third is to reinforce promotion and to keep close communication with the potential clients during attracting investment.

China IP: Which do you think is the most difficult part in this patent auction session?

Li Zhonghua: It should be the part of attracting investment. Patent auction is still a newly emerging concept for pharmaceutical enterprises. Therefore, it is necessary to introduce the value of the patents for targeted enterprises and cultivate clients’ consumption custom.

Concluding the experience of patent auction

China IP: In your opinion, what are the deficiencies exposed in the previous patent auctions which needed to be improved in the future? From the technical operation level, what measures should be taken to overcome these deficiencies?

Li Zhonghua: Generally speaking, Chinese patent exchange market is still not active enough, which is caused by many reasons. From the technical level, CTEX will overcome the deficiencies of the previous patent auctions from the following aspects: the first is to further enhance the ability of early patent analysis and evaluation instead of simply delivering the patent specifications to potential bidders; the second is to further analyze the product structures and development strategies of potential bidders to implement precision marketing; and the third is to further innovate the trading structure and mode.

China IP: What steps will CTEX take in terms of innovating the technology trading modes, expanding businesses and etc.?

Li Zhonghua: As a technology trading platform, CTEX will intensify R&D of new trading products and improve the trading system and procedure in the aspects of competence trading, openly competitive trading and other tradings. Moreover, CTEX will research the features of different technical fields and design targeted trading products. In the meantime, CTEX will closely keep an eye on the development of foreign technology trading to further enrich the trading products of CTEX.

Moving from technology field to commercial field

China IP: Would you mind sharing your personal experiences? How were you attracted to the pharmaceutical technology trading?

Li Zhonghua: I entered Beijing Medical University (now Peking University Health Science Center) in 1987. After graduation, I engaged in scientific research in universities and research institutions in Hong Kong, the Netherlands and US successively. I have also received some scientific research awards including the International Brain Research Organization Research Scholarship and Tennessee Excellent Post-doctoral Award. However, I have been long interested in technology commercialization, and it was in 2002 when I decided finally to engage in technology commercialization. I afterwards entered in CASE Western Reserve to specialize in technology commercialization-MBA. In 2006, I started to engage in this field. Therefore, it can be said that I have stayed in universities for 20 years before entering the business field.

China IP: From your viewpoint, what is the core factor in the technology trading service industry?

Li Zhonghua: Technology trading service is the core part of technology commercialization, which requires pretty high human quality. But there is far from enough talents in this industry now. Hence, I hope that Chinese government can strengthen the talents cultivation by way of encouraging higher education system from policy perspective and make efforts to attract overseas talents.

(Translated by Stella Yang)

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