Fast forward into the future

The centre of gravity seems to be shifting from developed to emerging economies. And China is one of them, which is slated to contribute 15 percent of world GDP by 2025. Quite a few countries who have truly grasped the magnitude, multi-faceted nature and speed of this change are eyeing the Chinese pharmaceutical market. Arshiya Khan reports

It's not enough to merely be present in India and China, argue the authors of the book, 'Getting China and India Right: Strategies for Leveraging the World's Fastest Growing Economies for Global Advantage' . Their theory is that "...any Fortune 1000 company that is not busy figuring out how to leverage the rise of China and India to transform the entire company runs a serious risk of not being around as an independent entity within ten to fifteen years..."

Also accompanying this is the fact that there is developing bilateral trade between China and other developed markets like US, EU Japan, Korea etc. This did not come as a surprise to me from my recent trip to API and Interphex, China. The Chinese pharmaceutical industry till recently dominated by domestic players is now open to MNCs as well. "Till date we were present only in the domestic market, but now we are looking at potential markets like Europe, India and South America which are important to us for exports," said Li Yan, General Manager, Qilu Pharmaceuticals. She continues, till recently we manufactured only APIs but gradually we have moved ahead into formulations as well. Its non-sterile APIs, sterile APIs and finished dosages have been respectively approved by USFDA, EDQM, TGA of Australia, MHLW of Japan, MCC of South Africa and some other national competent authorities. The company has partners like Strides, Astrazeneca and Cipla in India. We help them to manufacture finished dosage and then they sell to the regulated markets, adds Yan. (Qilu Pharmaceuticals is a leader of cGMP implementation in China and has a rich experience working with foreign companies, exporting to Europe, North America, CIS countries, Latin America, Middle East, South Africa and Asia including Japan, Korea, India etc.)

Getting richer and bigger

"Till date we were present only in the domestic market, but now we are looking at potential markets like Europe, India and South America which are important to us for exports" - Li Yan General Manager Qilu Pharmaceuticals

"Instead of MNCs exploring and taking advantage of India and China, these two countries should come together closely which will bring down the price of medicines" - D G Shah, Secretary General, Indian Pharmaceutical Alliance (IPA)

According to China Pharmaceutical Market Report 2009, as China continues to get richer as a nation, the pharma market will be more and more viable for foreign companies seeking new markets for their drugs. This quite exemplifies the fact that Indian companies have either acquired facilities in China or collaborated with Chinese players etc.

Until the 1980s, few MNCs operating there have yet realised the countries' immense potential as a drug market. Earlier frustrated by China's complex regulations and distribution networks, its IP laws, low expenditure on healthcare etc, foreign players had a minimal foresight of investing in China which is not the case anymore. And as per a report by the Boston Consulting Group, by 2010 China is expected to emerge as the fifth largest pharmaceutical market in the world, with revenues of over $ 24 billion more than triple its current size.

Every major pharma company has a China strategy. Novartis is the most aggressive: it is currently the fourth biggest supplier of medications to hospitals in that country and aims to make China one of its top ten markets by 2010. Another example is that of Roche which announced last year that it will establish an Asian Drug Collaboration Unit in China and at the same time expand the company's manufacturing facility in order to streamline its global supply chain. Others in the list also include companies like Astrazeneca, Pfizer, GSK etc. which have some or the other plans for China market.

Complementing growth

In both China and India, the market size for pharmaceuticals is growing at over 20 percent a year. Industry estimates are that, by 2017, pharma sales in just the big emerging markets are likely to be larger than those in the US plus the top five European markets combined. Indian players have their subsidiaries or indentors through which they supply to other markets of the world.

Speaking on the sidelines of an exhibition, D G Shah, Secretary General, Indian Pharmaceutical Alliance (IPA) averred, "Instead of MNCs exploring and taking advantage of India and China, these two countries should come together closely which will bring down the price of medicines."

Comparing China with the Indian pharma industry both these markets together offer a plethora of opportunities. Trade between these two countries has grown from $ 2.9 billion in 2000 to $ 36 billion in 2007, according to industry estimates. Though China and India are different from all other countries in that they present four 'stories' or opportunities rolled into one.

Firstly, they provide mega markets for growth opportunities for every product and service, with their cost effective advantage they can help reduce the global cost structure, the talent pool of engineers and scientists can boost a firm's technical and innovation capabilities and also offer launching pads for new global competitors, from which the next global competitors are likely to emerge.

Agrees Hu Kunping, Managing Director, Reed Sinopharm Exhibitions, "With first-rank manufacturing technology and product quality, China and India, the two giant pharma countries, have a much higher developing rate than that of the other parts of the world and enjoy a rapider national economy growth speed as well. Under such a favourable trend, the two sides should set up a new relation combining cooperation and competition."

Sifting the dust

"50 percent of the manufacturing facilities in China are now GMP compliant. The quality of Chinese products has also improved. We have been trading with Chinese manufacturers for some time now and we have seen the change" - Dhiren Shah Director Eastern Chemicals

"There has been a medical restructure in China which has opened up the market for foreign players and offers a big opportunity for domestic players as well" - Zhou Yan Secretary General China Pharmaceutical Industry Association (CPIA)

There are still some gaps that need to be filled like the complex regulatory processes, intellectual property rights infringement and corruption that remains a problem in China. The government has however sent a strong message on where it stands with this problem, with the execution of former State Food and Drug Administration (SFDA) Chief Zheng Xiaoyu in July 2007 on corruption charges, an unusually harsh punishment for such a felony, even in China.

Drug registration remains the purview of the SFDA, and improvements in drug registration, combating counterfeiting and general healthcare provision if addressed successfully could make China a more viable pharma market to do business with.

No more an issue

The quality of Chinese products was always doubted. But this too remains a distant talk now. Says Dhiren Shah, Director, Eastern Chemicals, "50 percent of the manufacturing facilities in China are now GMP compliant. The quality of Chinese products has also improved." He continues, we have been trading with Chinese manufacturers for some time now and we have seen the change.

"There has also been a medical restructure in the Chinese market which has opened up the market for foreign players and offers a big opportunity for domestic players as well," informs Zhou Yan, Secretary General, China Pharmaceutical Industry Association (CPIA). The blue print of the reform states that the ratio of those covered by the basic medical insurance is expected to surpass 90 percent by 2011. Besides this the government is increasingly aiming to regulate the pricing system of medical services and medicines.

As these reforms come into being there is still that China has to learn from India and other developing countries. Yan of CPIA stresses on the need of learning from Indian counterparts as the Indian players were the first to break the barriers and enter the regulated markets of EU and US. She feels this year is important for them as Chinese government has introduced new reforms and they are confident about their performance.

Lens for tomorrow

Few years down the line as the China pharma market continues to evolve with smoother drug regulations, stringent enforcement of IPRs, efficient distribution system, increase in health care funding and more advanced medical needs, these factors will undoubtedly sweeten the attraction of China for drug companies and heighten the competition there. But most importantly they might also level the playing field on which competition plays out-making victory for foreign drug companies. As these changes shape up and developing markets replace the emerging ones it will be worth a watch to see who will win the forthcoming competitive battles between established multinationals and the emer-ging dragons and tigers.

arshiya.khan@expressindia.com