New rules aimed at protecting firms' patent rights could polarise innovators and producers in China's pharmaceutical industry, according to an industry player. 'Firms must either innovate [to create] new drugs or shift their focus to marketing drugs modelled on patented formulas,' said Mr Wang Haibo, chairman of GEM-listed Shanghai Fudan Zhangjiang Bio-Pharmaceutical. Mr Wang said China's pharmaceutical industry faced structural change after the State Drug Administration (SDA) announced two sets of new rules on drug management and drug registration over the past two months. The new rules, which aim to better protect intellectual property rights for domestic and foreign pharmaceutical companies after China's accession to the World Trade Organisation, give a new definition of new drugs and scraps the patent protection period for all drugs in this category. Under the new rules, new drugs are redefined as the products which have not been previously approved for sale, both in China and overseas. Patent rights are protected for five years for this class of drug. The drug management rules became effective on September 15 and registration rules on new drugs will come into effect on December 1. Mr Wang said the rules narrowed the definition of new drugs, which could harm the mainland's drug industry. Many mainland pharmaceutical firms are believed to have modelled products on medicine manufactured overseas to avoid spending huge amounts on research and development. Under the previous rules, the patent rights of these products were protected by the SDA for six to eight years to help local brands compete with foreign companies. For example, the abolished rules, which categorised new drugs into four classes, considered a product as Class 2 if it had been approved for sale overseas but had not been included in the mainland's pharmacopoeia and it had not yet been imported into China. Under previous legislation, drugs in this category had patent protection for eight years. Mr Wang said this kind of product failed to get protection under the new rules. He said companies which used to model products on patented formulas were likely to change their business strategy in light of the absence of the patent protection period. They would shift their focus to drug marketing and distribution, he said. Taking into account capital investment, Mr Wang said that only companies with strong financials had the ability to change. Mr Wang anticipated that small-scale companies that had no expertise to develop new drugs and lacked financial support to focus on drug sales would find it difficult to survive. He said the new rules would speed up the consolidation of the industry and drive a growing number of mergers and acquisitions in the near future. Faced with the new rules, Mr Wang said his company would focus its resources on research and development of new drugs. He said that in the past it had sold its technology in the early stages of the drugs' development in order to bring in capital for the operation. This meant the value of the new drugs was not fully reflected. In future, he said Fudan Zhangjiang hoped to develop drugs to an advanced stage to reflect their true value. Fudan Zhangjiang is developing a number of western drugs aimed at treating cancer and osteoporosis. It is also developing a traditional Chinese drug to treat diabetes. The product is expected to be ready for sale by 2005. The company was in discussion with Japanese and US pharmaceutical companies to build up strategic alliances to enhance development technology, he said.