Chinese Market Favors US Approved Drugs in China

China’s pharmaceutical market continues to grow and advance on many fronts and its global importance and influence cannot be ignored. According to Pharma China, sales of all Chinese and Western drugs in China hit $50 billion at the end of 2007, and China’s Market is projected some industry analysts to be the second largest in the world by as early as  2012. In addition, many pharmaceutical multinational corporations (MNCs) have invested in obtaining the necessary approvals to distribute their drugs in China and through those efforts; China is becoming their leading overseas market in terms of growth and will likely become their largest foreign market within a few years. Because of this stunning growth, several pharmaceutical MNCs, including GlaxoSmithKline plc (GSK), have relocated some of their research and development (R&D) operations to China, including some of their core and IRF functions.

The Chinese pharmaceutical market has grown at double-digit rates over the past three decades. Sales of drugs, including Western medicines, biopharmaceuticals, and traditional Chinese medicines, rose 61 times between 1980 and 2007, according to the PRC State Food and Drug Administration (SFDA). The PRC government has wanted to build a leading edge domestic pharmaceutical industry led by large R & D based companies for a very long time. At the same time, the Chinese government has consistently welcomed foreign investment and encouraged the partnership of domestic industry with international companies. To achieve these goals, the PRC government has instituted new regulatory policies like preferential drug pricing and hospital drug procurement policies that favor research-based MNCs and large domestic enterprises. In addition, the Chinese government has improved market access for foreign companies and taken great leaps to strengthen intellectual property (IP) protection to foster innovation, including signing an agreement with the U.S. Food and Drug Administration (FDA) in 2007 to jointly combat counterfeit drugs.

In 2006, the SFDA began a campaign to increase supervision of all aspects of drug production. China has also stepped up its effort to regulate and approve APIs and regularly audit drug production facilities. Because of these efforts, China appears to be winning over the trust and confidence of many foreign companies especially R&D-based MNCs. Today, China’s pharmaceutical industry is developing in parallel with foreign R&D-based pharmaceutical companies. In addition, China will likely implement a multi-pronged, long-term strategy that will support new drug innovation, the growth and development of R&D-based MNCs in the country, and the rise of its own large and innovative companies. As an example, more than a dozen Chinese drug companies have listed in the U.S. stock market, according to ChinaBio Stock Index, and the resulting financial strength of these companies will help facilitate their rapid growth in China and globally. Moreover, PRC companies are beginning to acquire foreign companies—WuXi PharmaTech Co., Ltd.’s takeover of U.S. based AppTec, Inc. in March 2008, is an example of how domestic Chinese companies can expand their market share rapidly by acquiring international companies with strong technologies and researcher efforts.

In an effort to improve the overall drug marketplace and to increase foreign investments and partnerships in China, the PRC issued numerous pharmaceutical regulations in 2007, following a flurry of policy enhancements in the previous year. To exemplify this, the SFDA issued more than 50 regulations related to food, drugs, and medical devices last year, among which were Administrative Measures for Drug Registration, Management Measures for Prescriptions, and rules on false drug advertising which were the most noteworthy. These rules sought to improve transparency and increase scrutiny of drug approvals, standardize prescription procedures to prevent price manipulation and over-prescription, and evaluate companies’ credibility by the number of misleading advertisements put forth by those companies. Several draft regulations dealing with issues such as IP protection, contract manufacturing, counterfeit drugs, environmental conservation, recalls, and pharmacy management were also released for public comment in late 2007. All of these draft regulations, if passed, will have far-reaching impacts on the future of the pharmaceutical industry in China. The PRC government is also likely to intensify and broaden its regulatory control over drug prices. Not only do regulators hope to control prices of all prescription drugs, they also plan to step up control of drug prices by setting ex-manufacturer prices and regulating profit margins from manufacturer to retail. Another recent regulation will affect exports. In January 2008, under pressure from foreign governments, particularly the U.S. FDA, the PRC government introduced an export-licensing system to regulate, on a trial basis, 10 categories of drug exports, including direct and ancillary materials used in manufacturing drugs.

Based on current trends and China's growing population, it appears that China will become the largest foreign market for many multinational corporations in the coming years especially in lieu of the fact that China's State Government recently announced it will be adding ¥ $850,000,000,000 ($125 billion U.S.) over the next three years to provide a basic level of public health (including prescription drug coverage) for some of China's rural population.  These staggering growth rates in health expenditures in the coming years can be put into perspective when compared to China's GDP.  Current expenditures on health care are 5% - 7% of the People's Republic of China's (PRC) GDP.  The long term predictions by the PRC are that the percentage of GDP spent on health care will end up at 10 - 15% of GDP.  Finally, the growth of prescription drugs in China will ultimately get a huge boost starting in 2010 due to the Chinese Government's ambitious initiative to increase health benefits, including prescription drug coverage, to 85 percent of the country's population of 1.3 billion people.