China’s Pharmaceutical Market: Opportunities and Challenges

China’s pharmaceutical market continues to grow by 10 to 15 percent per year. Many expect it to be the world’s largest pharmaceutical market by 2020, with sales topping US$60 billion by 2010. Imports from the U.S. accounted for 8.51% of the market in 2000, ranking fourth (behind Germany, the U.K., and France) among pharmaceutical importing nations. Huge growth areas are in anti-infectives, antibiotics, cardiovascular and digestive system treatments, infectious disease treatments, and vaccines. U.S. vitamins and nutritional supplements are also in great demand. Overall, the pharmaceutical market is dominated by the hospital sector, which accounts for 90% of all drug sales. Over 13,000 of 64,000 hospitals in China use Western pharmaceuticals and medical devices.

Despite the attractiveness of the Chinese market, many foreign companies have concerns about operating in China. One important concern is intellectual property protection. Despite government crackdowns and other measures, counterfeiting remains a problem. China’s State Drug Administration (SDA) makes available information on foreign pharmaceuticals applying for Chinese patent protection to Chinese firms, ostensibly to make certain that the product is not similar to drugs already being produced in China. This system leaves foreign drugs vulnerable to copying. Often, counterfeiting and piracy goes undetected, and once detected, punishment is often minimal or non-existent.

That said, rules have been implemented to fight intellectual property violators. The SDA recently implemented the “Regulation on Supervision and Management of Drug Distribution” and the “Regulation on Procedure of Administrative Punishment on Drug Supervision,” aiming to eliminate illegal drug markets and production at unauthorized firms by having manufacturers market only their own products. The recent accession of China into the WTO also provides an enforcement mechanism, via the Trade Related Aspects of Intellectual Property Rights (TRIPs) agreement.

Many multinational pharmaceutical firms have invested directly in the Chinese pharmaceutical market, and more companies join their ranks every year. For example, roughly 30 multinational pharmaceutical companies currently are sponsoring clinical trials in China for new Class I drugs. In November 2001, Proctor and Gamble signed a cooperation agreement with the Medical College of Nankia University to explore new medicines for osteoporosis treatment. In January 2002, Bayer partnered with GlaxoSmithKline (GSK) to market Vardenafil, a drug treating erectile dysfunction that the companies hope will challenge the popularity of Viagra in China. In addition to its alliance with Bayer, GSK also invested US$144.93 million in setting up a manufacturing plant, in November 2001, to produce Heptodin, a chronic hepatitis B treatment.