Drug makers' new frontier

09 June,2005

By LEWIS KRAUSKOPF
STAFF WRITER

The most populous country has developed into a most enticing market for the pharmaceutical industry.

China - with more than a billion people - has seen its prescription drug sales boom in recent years along with its economy.

In turn, multinational pharmaceutical companies have China in their sights.

"You can't afford to be a big pharmaceutical company and not have a clear agenda for China," said Gustav Ando, a health-care analyst at Global Insight, a business intelligence company.

Annual prescription drug sales in China jumped 22 percent and 28 percent in 2003 and 2004, respectively, according to IMS Health, a pharmaceutical tracking firm. By comparison, global drug sales grew 10 percent and 7 percent in those years. This year, IMS expects sales in China to grow about 19 percent.

The ability of pharmaceutical companies to seize opportunities in China - which at $9.5 billion in sales pales in comparison to the top markets - is more relevant in light of governments, private insurers and companies in the biggest markets trying to rein in their drug spending. IMS projects annual growth for the world of 6 percent to 9 percent through 2008.

Sue Capie, a pharmaceutical industry consultant who has specialized in China for more than 20 years, said the country appears to be on the agenda of all drug companies.

"I can tell you there's been more interest the past 18 months than ever before," said Capie, of PharmaVantage in Babylon, N.Y., and whose voicemail answers in English and Chinese.

In addition to growing sales, pharmaceutical companies may look to China to expand their manufacturing and research and development operations, to capitalize on lower costs and the wealth of scientists.

Optimism toward the country stems largely from its above-average economic growth, allowing for greater spending on health care. The Chinese economy grew a sizzling 9.5 percent last year, slightly more than in 2003.

Also, in the past decade the intellectual property climate warmed for the industry - always a critical issue for drug companies.

But many uncertainties, challenges and potential obstacles involving patent protection, the drug approval process, pricing and other issues could stifle prospects.

"While of course it's a huge market and overall it is growing, it's a very difficult operating environment right now," said Heather Clark, assistant vice president for Asia and Japan at the Pharmaceutical Research and Manufacturers of America, the industry's main trade group.

Many differences exist between the American and Chinese pharmaceutical markets. Chinese consumers, for example, are more likely to get medicines from hospitals than from pharmacies.

Capie says that they often prefer drugs that are injected over pills, because they are perceived to act more quickly and work better.

The Chinese pharmaceutical industry remains remarkably fragmented - Ando estimates there are 3,500 to 5,000 companies.

But the industry is consolidating, in part because tougher standards enforced by the government have led companies to shut down.

Chinese companies historically have manufactured generic medicines, which are copies of branded drugs. Manufacturers of herbal therapies, known as Traditional Chinese Medicines, also play a large role. Domestic companies controlled more than 65 percent of the pharmaceutical market, according to a 2003 report by the International Federation of Pharmaceutical Manufacturers and Associations.

As it stands, however, IMS Health ranks five multinational firms - Pfizer, Roche, AstraZeneca, Novartis and GlaxoSmithKline - in the top 10 in annual sales in China.

One main encouraging factor is the enactment over the past decade of stronger provisions to protect patents. China moved to recognize intellectual property with reform of patent laws in 1993 and joined the World Trade Organization in 2002.

According to the pharmaceutical federation report, patented medicines accounted for 9 percent of the Chinese drug sales in 2000, but are projected to make up 21 percent by 2010.

But, Clark said, while the intellectual property laws may be modernized, companies still are wary that enforcement remains uneven.

In one case being viewed as a litmus test for patent protection, a Chinese government agency last year invalidated Pfizer's patent protecting Viagra, and the company appealed the decision.

Another industry burden is that for drug approval the Chinese regulators accept clinical trials performed on only Chinese residents - a different practice than in the U.S. and other countries. And companies also are worried about price controls dictated by the government.

"They can capitalize a little bit now, but I think the big payoff will be in several years," said Mark Ravera, principal at the Strategic Pharma Consulting Group.

source:http://www.bergen.com