September 1, 2006 (Vol. 26, No. 15)
Large Market Potential and Solid Foundation Set the Stage
Generic drugs represent one of the greatest values in the world’s healthcare business and are of profound significance in the area of biopharmaceuticals. Because biopharmaceuticals are currently among the most expensive therapeutics on the market, and a growing number of world blockbuster biopharmaceuticals have already lost or are scheduled to lose patent protection in 2006 or soon after (see Table 1 on p. 56), the biogenerics industry anticipates an explosive worldwide expansion.
Although biogenerics are not always easy to define, they are generally considered to be the generic forms of nonpatented biological products—molecules developed using biological processes usually through modern biotechnology activity. Given the complicated process of creating biologics and the complex nature of biological products, biogenerics are not technically generic biologics in the traditional sense. In other words, biogenerics are not technically generic biologics unless they have been proven to show the same bioequivalence as the biologics.
According to a joint study released last month by BioPlan Associates (www.bioplanassociates.com) and the Society for Industrial Microbiology (www.simhq.org), “Advances in Biopharmaceutical Technology in China,” Europe and the U.S. are expected to be the largest markets for biogenerics once the regulatory hurdle is overcome.
In April, the EMEA gave approval to Sandoz(www.sandoz.com) to market Omnitrope, a generic version of Pfizer’s (www.pfizer.com) human growth hormone. Sandoz also asked the FDA to approve Omnitrope in the U.S. market. In addition to the E.U., Australia approved Omnitrope sales last year.
The FDA is still on the way to developing a regulatory pathway for biogenerics in the U.S. where the barriers to the development of biogenerics may be more political than scientific, as many of the world’s major biotech players are anxious to defend their expiring blockbuster patents. In contrast, a biogenerics industry is already thriving in eastern countries, like China and India, where regulatory standards concerning biogenerics are more liberal. This may raise concern in Western countries about IP protection issues.
A major concern is whether China’s biogeneric industry is moving in the right direction or in a disorganized way with little consideration to IP issues.
Generic drugs dominate the Chinese pharmaceutical market; 95% of Chinese pharmaceutical products are generic. However, the market share of innovative drugs (including proprietary drugs) has shown an increase: rising from 17% in 1997 to 20% in 2003.
Background
For many historical, political, economic, and scientific reasons, generic drugs have played a key role in the Chinese pharmaceutical market over the past several decades, and this trend will most likely continue in the future.
Prior to the 1990s, Chinese pharmaceutical companies were not capable of developing innovative drugs due to financial and technical obstacles. When China’s Patent Law was first enacted in March 1984, it excluded drugs from patent protection, among other things. This law, however, provided patent protection for the manufacturing methods of pharmaceuticals. China’s Drug Administration Law, which was issued in September 1984, specified that pharmaceutical products that had never been manufactured in China were new drugs. The law allowed Chinese pharmaceutical companies to replicate foreign drugs that had not been manufactured inside China even if they had been manufactured outside elsewhere or had been marketed inside China.
To further protect the domestic pharmaceutical industry, China’s State Drug Administration (SDA) issued the Regulations on New Drug Protection and Related Technology Transfer in April 1999. The regulations provided a 6–12 year period of legal protection for five different categories of new drugs. During that period, a large number of Chinese generic drugs, which might have been patented drugs outside China, were protected as new drugs by the Chinese legislation, and thus sales expanded vigorously in China.
Healthcare Situation
Although China’s Gross Domestic Product (GDP) reached $2.28 trillion in 2005, the per capita GDP was only $1,700, ranking 100th in the world. Similarly, China’s per capita drug spending is among the lowest in the world, less than $20 annually (Table 2). For the majority (80%) of Chinese who live in rural areas, yearly drug spending is incredibly low—lower than $5 per capita. By contrast, an American spends more than $700 on medications each year.
Clearly, inexpensive generic drugs are a more affordable choice for most Chinese.
According to the Blue Paper released by China’s Social Science Institute, 65.7% of Chinese citizens are not covered by any kind of medical insurance. As of September 2005, only 133.41 million urban employees were covered by National Basic Medical Insurance.
Inexpensive Chinese generic drugs and traditional Chinese medicines (TCMs) account for about 90% of national and provincial Basic Medical Insurance Drug Catalogues, while expensive imported medicines are prohibited or restricted from China’s social medical insurance.
In recent years, Chinese consumers have been calling for practical drug price reductions to lower their increasing medical expenses. To address this problem, China’s National Development and Reform Commission drafted plans to cut the price of a number of commonly dispensed drugs that have been sold since 1996. In September 2005, the National Development and Reform Commission announced an average reduction of 40% of the retail price charged for 22 kinds of drugs, including antibiotics and interferons.
Innovation vs. Republican
China began developing innovative drugs only in recent years, and its ability to innovate remains limited. By contrast, most Chinese drug manufacturers have produced generic drugs for several decades. China’s low-cost human resources also play a role in the expansion of generic drugs.
In recent years, with market demand increasing for generic drugs in the consumer market, China is becoming one of a number of global off-patent crude drugs processing and purchasing centers. Abundant raw material supplies in China support generic drug production.
Current IP Protection
China has a short history of protecting IP rights for pharmaceutical products. Practical patent protection for pharmaceuticals was not available in China until January 1993. In 1992, China’s Patent Law of 1984 was amended and legalized drug patent protection for a period of 20 years.
To protect the exclusive rights of manufacture of foreign drugs, the State Council approved the “Regulations on Administrative Protection for Pharmaceuticals” in December 1992. Drug administrative protection is a special kind of exclusive protection, which is different from patent, trademark, and copyright. It grants the owners of eligible foreign drugs exclusive rights to manufacture or market in China for a period of seven and half years starting from the date of approval in China. This protection applies to any foreign companies or individuals from a country or region that has concluded a bilateral treaty or agreement with China on drug administrative protection.
After 1998 when the SDA was established, the SDA Drug Administrative Protection Office became the administrative authority for drug administrative protection applications. Since its inception, the Office has authorized administrative protections for 155 drugs from 12 different countries as of July 2005. Some of these drugs are listed as Table 3.
Following China’s entry to the WTO in 2001, more serious measures were taken by the government to address IP shortcomings.
In the “Regulations for Implementation of the Drug Administration Law,” effective September 2002, the definition of a new drug was modified in accordance with the Trade-Related Aspects of Intellectual Property Rights (TRIPS). New drugs are defined as those that have never been marketed or sold in China.
China issued the new “Drug Registration Regulations” (trial edition) on December 1, 2002. The old new drug administration protection system has thus been replaced by the new patent protection system. China’s Patent Law was amended again on December 12, 2002 pursuant to the TRIPS. The new Patent Law further harmonized China’s patent system with the rest of WTO member countries.
China’s IP protection for pharmaceuticals has gradually been coming into conformity with international standards over the past several years. The Chinese government continues to make efforts to enhance IP protections and address the IP pitfalls. The Patent Law will be further amended this year. The SFDA (successor of the SDA) has begun to restrict approvals of generic drugs. The government is increasing investment in both research institutes and pharmaceutical companies to encourage innovation. However, this does not mean that China’s IP system is without flaws. The continued existence in the market of a number of illegal generic drugs still poses a great challenge to the Chinese IP protection system.
Traditional Chinese medicine (TCM) is an important segment of the Chinese drug market, and its popularity is growing throughout the world. More than 900 Chinese herbal medicines have been patented outside China by foreign countries. China has learned lessons in IP protection from foreign pharmaceutical companies.
TCM IP Protection
The most painful lesson came from the Artemisinin (Qinghaosu) affair. Artemisinin is an internationally recognized anti-malaria TCM, first developed by Chinese scientists in the 1980s. When Chinese scientists published their research papers in international journals, foreign pharmaceutical companies immediately modified the drug’s structure slightly and applied for patent protection. This Chinese invention thus fell under foreign patents because Chinese companies did not immediately apply for patent protection in foreign countries.
To date, Artemisinin is available generically in more than 20 countries. The IP rights for Artemisinin are controlled by Novartis(www.novartis.com) and Sanofi (www.sanofi.com). Ironically, China has to pay patent fees to foreign countries when Chinese artemisinin products are exported to those countries. It is estimated that China has lost $200–300 million in exports each year as a result of the Artemisinin affair.
To protect the exclusive rights of TCM, China enacted the “Regulations on Protection of Traditional Chinese Medicine Varieties” in October 1992. The Regulations provide seven to thirty years protection for two categories of TCMs. Class I TCM protection periods are 30, 20, and 10 years, respectively. The Class II TCM protection period is seven years.
The concept of biogenerics in China is different from that of Western countries. Chinese biogenerics include both off-patent biological products and generic biological products developed by Chinese biopharms prior to China’s entry into the WTO. The biopharmaceutical industry in China is virtually a biogeneric industry.
China’s biopharmaceutical industry began in the 1980s when the Chinese government introduced a series of national programs (e.g., the 863 Program, 85 and 95 Key Tech R&D Program) and placed biotech and related industries as one of the major development sectors. Since the first Chinese-developed biotech drug, recombinant human interferon-a1b (Shenzhen Kexing Biotech), entered the Chinese market in 1989, China’s biopharmaceutical industry has undergone rapid expansion.
Today, Chinese biopharmaceutical companies have marketed 361 recombinant biogenerics (including therapeutics and vaccines) and 25 biotech drugs. More than ten innovative biotech drugs have been launched into the market, and more than 100 biopharmaceuticals are currently at clinical trial stages. Additionally, China is able to produce eight of the world’s top 10 genetically engineered drugs or vaccines.
Biopharmaceutical production value has also shown rapid growth. It surged from $30 million in 1986 to $200 million in 1996, and from $860 million in 2000 to $4.2 billion in 2005. Figure 1 and Table 4 summarize the sales revenue of biopharmaceuticals and pharmaceuticals between 2001 and 2005. Statistics show that China’s biopharmaceutical sales revenue has grown at a rate of 20–30% in the past five years. In 2005, biopharmaceuticals accounted for 7% of the pharmaceutical market. According to the “China Biopharmaceutical Engineering Industry Outline,” the country’s biopharma industry production value is projected to exceed $12.5 billion in 2015.
Chinese biochemical drug exports have also maintained a steady growth between 15% and 50% since 2001. In 2005, biochemical drug exports soared to $478 million, a 50.81% increase over 2004. Among them, Heparin Sodium experienced 54.48% growth over 2004, and recombinant insulin exports rose 61.27% over the previous year. However, some factors such as the appreciation of the RMB and a price increase for raw material still pose a big challenge to Chinese exports.
China’s SFDA databases have collected over 2,000 biological products made by more than 200 Chinese biopharmaceutical companies.
Tables 5 and 6 summarize major biogenerics and biogeneric manufacturers in China.
Conclusion
China’s biogenerics industry has experienced rapid expansion and will continue to have steady growth in future years. Chinese state and local governments are making sustained efforts to fuel the expansion of the biogeneric industry, while enhancing IP protection for both domestic and foreign biologics. China is a country with a large market potential and solid foundation to produce biogenerics and it will play an important role in the world’s biogenerics market in the future.
Eliza Yibing Zhou is project director for research programs in China and India for BioPlan Associates. She is an editor for the upcoming publication, Advances in Biopharmaceutical Technology in China, to be published by BioPlan Associates and the Society for Industrial Microbiology. Web: www.bioplanassociates.com. Phone: (301) 921-9074. E-mail: [email protected].
