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Feature

Unlocking China’s Pharma Potential

Posted on: 24 Sep 04

Summary

China is predicted to be a major pharmaceutical market in the future. However, like other emerging markets, there are a number of challenges that companies need to deal with in order to unlock its full potential.

A growing economic power

According to the Economist magazine, since 2001 the Chinese economy has reportedly accounted for one-third of global economic growth (measured at purchasing-power parity), which is twice as much as the USA (1). The pace of economic growth in China has excited organizations looking to make the most of the global marketplace and the country has experienced considerable inward investment from companies operating in a variety of industrial sectors (2). However, there is now a concern that the Chinese economy may be growing too fast and that policy makers need to keep it under control.

 

Chinese industry is a huge consumer of raw materials and so it has provided valuable support to the economies of countries from which it imports these goods. For example, in 2003, it accounted for one-third of the growth in global oil consumption and 90% of the growth in global steel demand (1). Therefore, if the Chinese economy were to run into problems it would have significant global consequences.

 

Since the late 1990s when a number of Asian economies suffered, policy makers have taken a more cautious attitude to economic growth in the region. However, there are a number of observers who believe that China’s policy makers are already taking steps to avoid the problems that affected the region in the 1990s. Optimists point to the fact that unlike other emerging national economies that have run into problems, China has a current-account surplus and little foreign debt (1).

 

Pharmaceutical potential

The economic concerns about China have not dampened the enthusiasm of those in the pharmaceutical sector. China remains one of the fastest growing pharmaceutical markets in the world. Over the last decade, there has been a steady influx of foreign multinational companies accompanied by the establishment of a large number of domestic pharmaceutical companies. In a survey carried out by CMR International, respondents from major pharmaceutical companies predicted that China would become the Asian region of greatest commercial importance by 2005 and would remain dominant thereafter (3). Despite setbacks such as the SARS crisis, international companies remain optimistic about the future potential of China to become a major world economy.

 

Aside from commercial operations, a number of pharmaceutical companies have set up R&D centres in China. For companies to set up such centres, they must first be registered with the China’s State Drug Administration (SDA) through the relevant provincial drug administrations, otherwise their application will be refused (4). The requirements for approval are set out in the Notice of the Ministry of Foreign Trade and Economic Cooperation on Issues Relating to the Investment in and Establishment of Research and Development Centers by Foreign Investors, which was issued in April 2000 (4).

 

Ups and downs for multinationals

The one area, which has restricted an overwhelming endorsement of the Chinese market by multinational companies, has been the weak Chinese environment for intellectual property (IP) protection (2)). In particular, pharmaceutical companies believe that the government needs to strengthen legislation to prevent illegal copying of branded drugs. In 2000, the China Daily newspaper reported that there were 50,000 cases of counterfeit or inferior pharmaceutical products in China and that this led to the closing down of 1,345 factories (4). China’s New Pharmaceutical Administration Law came into effect in December 2001 and has led to stronger measures being taken against counterfeiters. In conjunction with local drug administrations, the SDA has been running an ongoing campaign against the counterfeiters.

 

During the early 1990s, one of the problems for pharmaceutical companies wishing to enter China was that the country did not protect chemical or pharmaceutical innovative products in the same manner as in major markets (4). There was a belief in China that inventions should be shared and to a degree this attitude persists (5). However, ever since China’s move to join the World Trade Organization (WTO) there has been a very noticeable change in the legislation (4, 5). In 2001, the Patent Law of the People’s Republic of China was amended to extend protection to pharmaceutical products and processes obtained by a chemical process since 1993. The amended Patent Law defines the action to be taken against those who seek to infringe patents and specifies damages (4). Multinational companies investing in China have welcomed these moves but remain concerned that the legislation is not being effectively enforced and believe that further improvements should be made.

 

The worries over the Chinese environment for intellectual property resurfaced in 2004 when the Chinese patent for Pfizer’s Viagra (sildenafil citrate) was overturned (5, 6). This was a considerable shock for the pharmaceutical industry and was even described as a troubling development by the Deputy US Trade Representative (6). Viagra had been launched in China during 2000, but had suffered considerable problems due to the action of counterfeiters (6). The situation for Pfizer then worsened when the patent re-examination board of China's State Intellectual Property Office (SIPO) overturned the 2001 patent on the use of sildenafil citrate. Chinese companies had petitioned the SIPO to nullify Pfizer’s patent on the grounds that it failed to fulfil the "novelty requirement" of Chinese law (6, 7). According to this provision, a patent cannot be granted if an identical invention has been published or used within the country. Despite this setback, Pfizer have stated that they will challenge the decision and it is likely that the ensuing legal battle will be lengthy (6).

 

Following the Viagra patent decision, there was further worry for the multinationals, when GlaxoSmithKline announced that it was abandoning the defence of a patent in China for rosiglitazone, a major chemical component of its anti-diabetes drug Avandia (8). Although China had granted patents to GlaxoSmithKline covering the active ingredient of Avandia in 2000 and for its manufacturing process in 1998, during the early 1990s Chinese companies began to copy rosiglitazone (8). GlaxoSmithKline filed a third patent application to the SIPO in an attempt to extend the protection for its product to the other salts of rosiglitzone, but Chinese companies responded by filing invalidation requests (8). Although a hearing for these invalidation requests was scheduled with the Patent Re-examination Board, GlaxoSmithKline decided not to proceed in defending its position. However, as GlaxoSmithKline still holds two other patents covering Avandia it stated that that the case did not open the way for Chinese companies to actually copy Avandia (8).

 

Outlook

There is no doubt that China will be a significant pharmaceutical market in the future. Although there is unease over the Chinese environment for intellectual property protection, these concerns have also been raised in other emerging markets and so they are not unusual problems for multinationals to be faced with (2). As the Chinese market develops in importance and more foreign investment enters the country it is likely that there will be tightening of the necessary legislation – as has been seen in other emerging markets such as India (2). If for some reason the intellectual property regime does not improve then China would stand to lose out to other Asian markets, which is something that the government would not want to see happen. In the short term there would appear to be difficulties, but from the scale of investment by the multinationals it is clear that they are optimistic about the future of the Chinese market.

 

References

1.      The great fall of China? The Economist. 13 May 2004. http://www.economist.com

2.      Kermani F. (2004). Unlocking Asia's Pharmaceutical Potential. ThePharmYard. http://www.thepharmyard.com/shop/product.php?xProd=217&a=chltn

3.      Kermani F and Findlay G (2000). The Pharmaceutical R&D Compendium.  CMR International. http://www.cmr.org

4.      Ling CL (2002). New developments in China’s pharmaceutical regulatory regime. Journal of Commercial Biotechnology. Vol 8 (3): 241-248.

5.      D’Antico JH (2003). A quick primer on Chinese patent law. I.P. Insider. Whyte Hirschboeck Dudek S.C. Spring 2003. http://www.whdlaw.com

6.      Update 2: Pfizer: China Overturns Viagra Patent. 7 July 2004. Forbes. http://www.forbes.com/

7.      Mooney P (2004). China challenging drug patents. The Scientist. 20 August 2004. https://www.biomedcentral.com/news/20040820/02/

8.      Jize Q (2004). European drug maker gives up patent. China Daily. 19 August 2004. http://www.chinadaily.com.cn/english/home/

 

 

 

Dr Faiz Kermani

Last updated on: 27/08/2010 11:40:18

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