The development of pharmaceutical enterprises relies heavily on IP protection, which is not only due to the fact that the research and development of pharmaceutical products require a huge investment, but also because generic-drugs are comparatively easy to develop and siphon profits.

In 2009, the scale of the global pharmaceutical market reached USD 837 billion, up 7% over the same period last year. The global pharmaceutical market in the next five years is expected to increase by USD 300 billion and reach USD 1,100 billion in 2014, with a compound annual growth rate of 5% to 8%. Although governments are trying to control the growth of medical fees, the pharmaceutical market continues to grow faster than the economy itself. This situation mainly results from the development of new drugs, the change of demography and the improvement of people’s health expectations. Moreover, as the developing pace of the traditional medicine market is slowing down and the multinational pharmaceutical enterprises have increasingly recognized the promising prospect of China’s emerging markets, many new medicines appear in the Chinese market.

The Chinese pharmaceutical market seemingly has a bright future, as the Chinese government provides numerous referential policies for pharmaceutical R&D. Multinational pharmaceutical companies hold an optimistic attitude towards the Chinese market. However, in the emerging pharmaceutical industry, many problems still need to be addressed.

Did the Spring of the Pharmaceutical Industry Really Come

It is said that the development of the pharmaceutical enterprises in China can be classifed into three phases:

1. Medical products are mostly generic imitations of well-known drugs whose patents have expired. This phase features sales quantity and the terminal control;

2. Enterprises, guided by patents, begin to construct characteristically different products; guided by technology, they begin to form core competitiveness and 3. Based on the needs of consumers, enterprises begin to construct brand images and boost the sales of core products; led by marketing strategies and especially targeted at the OTC, they begin to build competitive enterprises.

It is reported that domestic pharmaceutical enterprises mainly target generic medicines. In the next fve years, some patented drugs with a value of over USD 77 billions are about to expire. For the Chinese pharmaceutical enterprises growing up in the generic medicine market, it seems that they have found the place to display their prowess. Metaphorically, some say the Chinese pharmaceutical enterprise spring is around the corner, and there will be enough pharmaceutical cake for many Chinese enterprises to have a slice.

From From 2001 to 2010, a very large percentage of patented drugs expired. More than half of the patented drugs owned by some large multinational pharmaceutical companies confront expiration. A large number of pharmaceutical companies with single-product sales valued at USD 1 billion have faced the same problem. From 2011 to 2015, it is predicated that patent drugs worth USD 77 billion will expire.

Pfzer’s popular cholesterol-lowering drug Lipitor is scheduled to expire in 2011. In 2009, sales of Lipitor reached USD 12 billion. Wyeth’s patent on the anti-depressant drug Effexor expired at the end of 2010. Merck’s anti-allergy drug Singulair will expire in 2012. Eli Lilly’s antipsychotic drug Zyprexa will expire that year as well.

The chief IP advisor of Bayer Group Dr. Joerg Thomaier said, “The patent system is just a system which can provide protection to original creators for a limited period. Therefore, the patent expiration is a problem we cannot avoid. Drugs, as special products, have to go through many clinical trials before going public. Such a process will consume a lot of the valid patent time and shorten the valid period of exclusivity. Therefore, many countries have developed a compensation system to reimburse patent holders accordingly.”

Many multinational pharmaceutical enterprises mainly focusing on research and development have to face their patents’ expiration. Comparatively, most Chinese pharmaceutical enterprises are waiting for that moment.

Dr. Che Yan, who studies pharmacology in RMIT University, believes that among the 5,000 pharmaceutical enterprises maybe only ten have the chance to share the cake mentioned above. For pharmaceutical enterprises which want to take the international route, they have to obtain the EU Good Manufacturing Practice (GMP) certification. At present only ten Chinese pharmaceutical enterprises have the certification, such as Beijing Second Pharmaceutical and Wuxi Kaifu Pharmaceutical. Though these enterprises have obtained the EU GMP certifcation, they only occupy less than 15% of the whole Chinese pharmaceutical market, while eight American pharmaceutical companies share nearly 65% market share. Whether there is enough cake is a reality the pharmaceutical companies still question.

Multinational Enterprises’ Strategies

In addition to the expiration problem, the fnancial crisis has also had an impact on the multinational pharmaceutical companies. Sanofi-aventis Group is one of the world’s leading pharmaceutical companies. It is a leader in such seven medical felds as angiocardiopathy, tarombokinesis and oncology. In 2008, it invested EUR 4.6 billion in research and development; about 17% of their income was spared to ensure a creditable R&D program. But, infuenced by the financial crisis and the expiration problem, Sanofi-avent has set up factories to produce generic drugs in India.

Speaking about the relationship between patent drugs and generic drugs, patent legal affairs director of Sanofi-aventis Group Robert DeBerardine said, “Companies producing generic drugs are always interested in well-known drugs. Brand name drugs not only have to go through a long-period research and development but also a long-period promotion. After the drugs become well-known, the patent expires. The reason generic drugs focus on well-known brands mainly come from the fact that it is easier to promote a product consumers are familiar with. One can simply say, ‘My medicine is the same as your favorite ones.’ We don’t oppose the production of generic drugs, as its cheap price is rather attractive.”

Dr. Oliver Lutze, IP director of Bayer Great China, said, “The impact on Bayer brought by the fnancial crisis is deep. Bayer attaches great attention to the companies’ long-term competitiveness and its sustainable development. Bayer focuses on the developing tendency of the future market. Innovation is always the basic business model for Bayer.” Chief IP advisor Joerg Thomaier said, “Bayer never thought ofentering the generic drug market. Innovation is what we pursue and we should insist on.”

We find multinational pharmaceutical enterprises hold different attitudes when confronted with the current pharmaceutical market. However, they do share a common idea; that is, the Chinese market is promising.

Turn to the Chinese Market

As the only first-level emerging market, China’s strong economic growth and its huge investment in medical reform provide an unprecedented guarantee for the development of China’s pharmaceutical market. At present, among the world’s 17 emerging pharmaceutical markets, China is the only first-level one; the markets at the second-level include Brazil, Russia, Eastern Europe, India and so on. In 2009, the 17 emerging pharmaceutical markets accounted for 37% of the world’s pharmaceutical markets.

“During the past twenty years, China has achieved progress which many countries have to spend a hundred years to obtain,” Robert De Berardine said, “We not only have confdence in the Chinese market but also in the reserve of high-end talents. As every aspect such as the IPR protection is improving, the research and development of medicines will have a booming future. The Chinese market is like a volcano which is about to break out. Such an eruption is really exciting.”

While Chinese pharmaceutical enterprises are focusing on the expiration of patent drugs, multinational enterprises are pursuing an all-around development. They pay as much attention to the Chinese market as on the cultivation of native talents. All of this has been done to establish a comprehensive research institute in China.

Bayer has explored the Chinese market for years and now it is its most successful market. Joerg Thomaier said, “In America, the litigation not only consumes a lot of money but also a lot of social resources. In Europe, the enforcement is different in each member country. But generally speaking, the enforcement of patent protection in western countries is defnite and predictable.” He further emphasized that “China’s patent system is more comprehensive than India’s. Compared with China’s protection on patent drugs, India is more likely to protect generic drugs. Therefore, China’s market is more suitable for the research and development of patent drugs.”

Research for this interview revealed that multinational countries were not only confident in the China’s market but also in the legal system. Joerg Thomaier believed that “China’s Patent Law is very advanced and is still improving. Bayer was once involved in several patent infringement cases, and received fair treatment throughout the whole process. While, compared with other countries, the administrative management in the importation and exportation of technologies should be given more attention. Now Chinese technologies can be classifed into the following three categories: the limited; the forbidden and the free. Regarding the importation and exportation of technologies, enterprises will proft from the fewer administrative limitations.”

Robert De Berardine thought that “The revision of the Patent Law is more applicable to enterprises, especially multinational enterprises. But some regulations need to be further clarifed. If every aspect has a clear defnition, conficts will reduce.”

Whether for the domestic enterprises focusing on the production of generic drugs or the multinational enterprises targeting at the R & D of patent drugs, the Chinese market will provide them enough stage for all to play a role.