Translator：Wang Qiyu

Capital market has been taking long position for Pharma sector for many years. Most recently, Chinese Pharma R&D has attracted attention from domestic as well as global investors. Earlier this year, Mr. Xiang Tang (Attorney-at-Law, Equity Partner) has facilitated a case where his (international) client was looking to take shares in a Chinese pharma R&D start-up. 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. Currently, the client is discussing and defining the price with the Target Company.

The target company primarily focuses on independent research and development of innovative drugs for treating tumors, including lung cancer, glioblastoma, breast cancer, and particularly emphasizes the development of small molecule targeted drugs for clinical rare brain tumors. Due to the unique characteristics of the pharmaceutical industry itself, investigating and analyzing the qualifications and operational model of the target company is one of the key aspects of the entire legal due diligence process.

An overview of the target company's operational model is shown below:

Once the operational model of the target company is clarified, further verification is needed to determine whether it possesses the relevant qualifications and fulfills its obligations. Under the current drug registration procedures, the process from drug screening to market approval involves preclinical research, clinical trials, and new drug market approval steps. The preclinical research stage includes drug target discovery and confirmation, compound synthesis and screening, pharmaceutical research, pharmacology and toxicology studies, and formulation development. The clinical trial stage involves Phase I, II, and III trials. China's current laws and regulations provide specific provisions for different stages, such as:

Preclinical Research Stage

1. The sponsor is responsible for the research data used for registration[1]. The holder of the drug marketing license is responsible for non-clinical research of the drug[2], and research institutions must comply with the relevant provisions of the "Quality Management Specification for Non-Clinical Research of Drugs".
2. For units engaged in actual non-clinical safety evaluation studies of drugs, non-clinical safety evaluation studies of drugs should be conducted in institutions certified under the "Good Laboratory Practice" (GLP) certification[3].

Clinical Trial Stage

1. Drug clinical trial institutions are subject to record management, and applicants should select drug clinical trial institutions that have been recorded in the "Drug Clinical Trial Institution Record Management Information Platform" to conduct drug clinical trials[4].
2. The holder of the drug marketing license is responsible for the drug's clinical trial[5].

New Drug Market Approval Stage

1. Drugs marketed in China must be approved by the drug regulatory authority of the State Council and obtain a drug registration certificate; this does not apply to unregulated Chinese herbal medicines and Chinese herbal extracts[6].
2. The holder of the drug marketing license is legally responsible for the safety, efficacy, and quality control of the drug throughout the entire process of development, production, operation, and use of the drug. The legal representative and key personnel of the holder are fully responsible for drug quality[7].

New drug research and development is a high-risk, high-investment, high-return industry characterized by a lengthy preliminary stage, substantial investment, low success rate, and strict regulatory oversight. Therefore, the investigation of a new drug research company involves comprehensive research from multiple aspects and levels, making it a complex endeavor.

1. Article 49 of the "Quality Management Specification for Non-Clinical Research of Drugs".
2. Article 30 of the "Drug Administration Law of the People's Republic of China".
3. Article 10 of the "Drug Registration Administration Regulations of the State Food and Drug Administration".
4. Article 19 of the "Drug Administration Law of the People's Republic of China", Article 30 of the "Implementation Regulations of the Drug Administration Law of the People's Republic of China".
5. Article 30 of the "Drug Administration Law of the People's Republic of China".
6. Article 24 of the "Drug Administration Law of the People's Republic of China".
7. Article 6, Article 30 of the "Drug Administration Law of the People's Republic of China".