China is coming from behind and challenging India in an industry it has traditionally dominated
During the first week of August, drug multinational (MNC) Novartis suffered a setback in India when it lost a legal challenge to the country's patent law.
After being refused a patent for Glivec, a leukemia drug, the company moved to challenge the validity of India's patent law, which does not protect incremental innovations. The company launched several lawsuits, including one that said the law went against WTO rules.
On August 7, a court in the southern city of Chennai ruled against Novartis, saying it was up to the WTO to make decisions on its own rules. The ruling will make it difficult for other firms to seek patents on drugs that are not entirely new but are based on existing compounds.
India's generic pharmaceutical industry is legendary and has helped bring down the cost of essential medicines. It takes compounds that are unpatented in a particular country, copies and sells them cheaply around the world.
Since India offered virtually no patent protection until 2001 and then provided a 10-year holiday on new registrations, the industry still has room to grow. For MNCs, this lack of legal cover does not encourage investment. China, by contrast has taken a very different approach.
"Just the opposite happens here," said Beatrijs Van Liederkerke, a director at PricewaterhouseCoopers (PwC) who tracks the pharma industry. She cites Pfizer's victory in the Chinese courts after generic drug makers tried to get its Viagra patent overturned as evidence.
"It gives confidence to the multinationals that IP is protected and that the right laws and regulations are in place."
STAR IN THE MAKING
A stronger legal framework combined with skilled scientists and government incentives are turning China into a pharma powerhouse. MNCs are queuing up to build R&D centers in the country with one eye on a domestic market that will be the world's sixth largest by 2010, according to healthy industry consultancy IMS.
For China's domestic pharmaceutical industry, however, the Holy Grail is a new manufacturing process that will play up its traditional strengths.
New guidelines put forward in 2004 by the US Food and Drug Administration (FDA) allow for new production methods based on principles rather than the old checklist method of approvals. This is a drastic change, as it allows for more creativity in production methods as long as they remain safe.
With India reluctant to switch over, China has a huge opportunity.
"Once they grasp the idea they will be ahead of the Western pharmaceutical companies," said Van Liedekerke. "If there is one company that does it, it's going to go quickly."
China's pharma industry is low-end but its cost efficiency has allowed it to become a major player in the production of important active ingredients. This growth has seen the country's pharma exports jump from US$300 million in 2000 to US$675 million in 2006, according to US Commerce Department statistics.
India's generic manufacturers are well aware of China's strength and are seeking to capitalize on it by building partnerships in the country. To them, it is another means of pushing up profit margins.
When asked to comment on the importance of China to the global pharma industry, Mahendra Bharadwaj, managing director of Ranbaxy China, replied: "Why comment on the obvious?"
Cipla, one of India's generics success stories, is also doing business in China.
"If tomorrow the Chinese decide not to supply the world with raw materials, the pharma industry would collapse," said Dr Yusuf Hamied, chairman of Cipla.
VOLUME BEFORE VALUE
According to Hamied, India and China together accounted for about 2.5% of global pharma sales by value last year