LIFTING OF PRICE CONTROLS ON DRUGS THREATENS SMALLER PHARMACEUTICAL MANUFACTURERS IN CHINA
In a move to raise competitiveness in the pharmaceutical industry in China, the State Food and Drug Administration (SFDA), the government body which has replaced the State Drug Administration for some pharmaceutical regulatory functions in China, has lifted price controls on over 90% of pharmaceutical products available in the country. As a result, pharmaceutical manufacturers in China have been scrambling to gain market share by undercutting their competitors’ prices. Many drug makers in China have found themselves in a position where sales are increasing, however, expenses have also risen due to greater efforts in marketing and promotion.

Smaller drug companies are feeling the impact of the new regulations. The price wars ensuing between the larger pharmaceutical manufacturers have begun to squeeze the profit margins of these smaller companies. For example, Shandong Xinhua Pharmaceutical, which produces antiseptics, analgesics and antipyretics, reported a 16.4% decrease in net profits to RMB 68.38 million (US$8,261,000) in 2002. The company has already increased its direct sales channels, invested in greater efforts to market to foreign markets, as well as cut down on operating costs. In spite of these measures, the company concedes that the year ahead will still be a tough one.

It is expected that this “disorder” will continue in China’s pharmaceutical industry for an extended period of time. Although the government’s goals of greater competition and increased improvements in the pharmaceutical sector are sound in theory, the process will be long and arduous. In order to prevent counterfeit drug production and illegal drug manufacturers from competing with lawful companies, the government has enforced regulations to require drugs to be “certified” prior to being marketed for public consumption. This has already halved the number of domestic manufacturers to 4,000 through the shutting down of illegal manufacturers.

JAPANESE PHARMACEUTICAL AFFAIRS LAW (PAL) REVISIONS: LABELING REQUIREMENTS FOR MEDICAL DEVICES
The Pharmaceutical Affairs Law (PAL) that passed legislation in Japan last year included four major revisions that are noteworthy to foreign medical device manufacturers:

1. Revision of the measures for safety related to medical devices,
2. Enhancement of the measures for safety after marketing, and revision of the approval and licensing system,
3. Revision of the evaluation system for approval, and
4. Measures for securing safety related to the biologically derived products.

Besides these revisions, labeling requirements for medical devices will also be revised. Although the details of this change have not been officially announced, some additional information has been made known. The name of the medical device, manufacturer’s serial number or lot number, and manufacturing code will be required to be affixed to the device or its immediate packaging in the future. This is in addition to the direct presentation of the name of the distributor and expiration date on the medical equipment that is currently required.

These revisions were passed in April 2002; however, they are not scheduled for implementation until April 2005, except for regulations related to biologically derived products, which will be implemented between April and July 2003.

US GOVERNMENT TO STEP UP EFFORTS TO PROTECT MULTINATIONAL PHARMACEUTICAL COMPANIES IN SOUTH KOREA
The National Trade Estimate (NTE) Report released in April 2003 by the Office of the US Trade Representative (USTR) recently criticized South Korea’s trade barriers and lack of communication between the Korean government and multinational pharmaceutical companies. Based on the strong language chosen in the report, it is expected that the US will begin to step up trade pressure on South Korea in order to resolve complaints made by foreign pharmaceutical firms.

Many multinational pharmaceutical companies currently operating in South Korea are protesting the local government’s inconsistent enforcement of existing laws. They are also objecting to the fact that the Korean government fails to consult the foreign pharmaceutical firms when creating new regulations on drugs. Recent regulatory changes such as the price ceilings placed on many new foreign drugs have caused considerable dispute [Please see PBI Asian Medical eNewsletter, Volume 2, Number 10 at www.pacificbridgemedical.com under the Newsletter section]. The Korean government has defended that the price ceilings were necessary to cut the government’s healthcare budget deficit. Foreign pharmaceutical manufacturers in Korea, however, feel that they have been unnecessarily targeted and that the government can find other means to reduce their budget deficit.

The Korea government has also refused to utilize the A7 pricing system for new drugs. This system uses the average ex-factory price from 7 of the world’s most-developed (OECD) nations in determining the price for new drugs. Frank Bobe, Country Manager for Novartis, claims that Korea’s price controls are “protectionism rather than cost-control.”

Jan Petersen, president of Pharmacia Korea explained, “We don’t ask that the government gives us the right to make registrations. What we ask is that when it intends to change the rules and regulations, there should be dialogue between all parties concerned before it makes changes.”

NEW LABELING REQUIREMENTS FOR PHARMACEUTICALS IN TAIWAN
In an effort to prevent and reduce errors in administering medication, Taiwan’s Legislative Yuan (Council) ratified a revision of the Pharmacy Law on January, 14, 2003, requiring that all medicines sold in Taiwan must have labels in Chinese. Due to increased instances of patients being given incorrect medication, manufacturers as well as importers who have not yet entered the market will be required to add Chinese labels to their drug products before they are placed in the market. For manufacturers and importers who already sell and distribute within the Taiwanese market, they will be given a grace period of three months to comply. The new regulation also holds true for products that are manufactured and packaged locally in Taiwan that are sold locally as well as internationally.

In addition to the original requirements, the new regulation mandates that information about a drug’s contents, functions, specifications, and main manufacturing methods must be labeled in Chinese. The labels should be submitted to the Department of Health (DOH) for registration and approval prior to the product’s market introduction. The DOH is the government agency responsible for reviewing the new labels.

Any pharmaceutical company who fails to comply with the new legislation will be fined between NT$60,000 (US$1,730) and NT$300,000 (US$8,630). Failure to add the correct labels after the first fine, will subsequently lead to heavier fines.

There are concerns, however, that the new law will have loopholes. Due to “practical difficulties,” health officials are able to make exceptions to the labeling law. This allows more opportunities for bribery to occur between importers and health officials in Taiwan. The DOH, however, continues to stress their determination to enforce the new regulation for Chinese labels.