An untapped potential goldmine, the Chinese market has long been eyed by foreign capitalists. However, historic trade barriers have kept the territory off limits, though such walls seem to be falling as the communist country's government allows capitalism to seep inside its borders.
China's move into the World Trade Organization in 2001 further positioned it as a viable market for outside investors, including multinational drug development companies. But they have been resisted by users of traditional Chinese medicines and have faced weak patent protection laws that allow counterfeit products and domestic generic drug makers to negate potential profits.
Still, though, with a population of more than 1 billion inhabitants - about one-fifth of the world - the pharmaceutical market opportunity is undeniable.
"There's a bit of a hype about China these days because it's not just the biggest country in the world in terms of population, but it's also the fact that its gross domestic product is growing at an impressive rate," said Brigitte de Lima, an associate analyst at London-based market analysis firm Datamonitor plc. She added that China's GDP grew at more than 9 percent last year, is expected to do so again this year and foreign investment was more than $50 billion in 2003.
She said a Chinese health care consulting company estimated that the pharmaceutical industry grew by more than 16 percent last year, and that growth is projected to continue. De Lima focused a recent report on the opportunity for drug companies in infectious diseases and said there are 120 million Chinese with hepatitis B and 41 million with hepatitis C, which means China harbors one-third of the world's chronic hepatitis B sufferers and one-quarter of its chronic hepatitis C patients.
"There are plenty of drugs available for hepatitis, and there are also dozens and dozens of products in the pipeline," de Lima told BioWorld Today. "There's an interest for people to see what the market is like and what the potential still is. It's really a massive market."
Drugs Selling, But Market Not Fully Realized
Several Western pharmaceutical firms have worked their way into hepatitis, generating estimated revenues of more than $110 million last year. But Datamonitor estimates that the Chinese hepatitis market could be worth up to $660 million.
A small U.S. company, SciClone Pharmaceuticals Inc., has been selling in China for nearly eight years with Zadaxin (thymalfasin). This year, the San Mateo, Calif.-based business expects to generate most of the product's $22 million of worldwide sales in China.
"We've had to deal with [trade barriers]," said Hans Schmid, the managing director of SciClone Pharmaceuticals International Ltd. "But perhaps less so than larger companies that have patent-protected products that have received approvals around the world, and are looking to expand in China. We started in China, and we essentially do not have patent protection in China. But we are really guarding the trademark."
The Chinese regulatory authority, the State Drug Administration, approved Zadaxin in 1996. Sold in 32 other countries, the product is a synthetic preparation of thymosin alpha-1, a natural substance that circulates in the body and plays a role in immune responses to viral infections and certain cancers. It is prescribed in China for hepatitis, and to a smaller extent for hepatocellular carcinoma through off-label use, and has developed a following largely through the company's 80 China-based sales representatives.
"We hold it as a cGMP-manufactured product," Schmid told BioWorld Today. "You are assured of its quality every time, as opposed to many locally available biological products or other thymalfasins, which often have simply not gone through a quality-control process."
That name-brand recognition has elevated Zadaxin to its competitive market share. Larger drug companies involved in the Chinese hepatitis market include GlaxoSmithKline plc, of London, which sells the leading antiviral called Heptodin (lamivudine), as well as Kenilworth, N.J.-based Schering-Plough Corp. and Basel, Switzerland-based F. Hoffmann-La Roche Ltd., both of which sell interferons. Gilead Sciences Inc., of Foster City, Calif., has sold Hepsera (adefovir dipivoxil) in China since last year in partnership with GSK.
Generics, New Drug Pricing Problematic
China's domestic drug development industry is primarily focused on generics, de Lima said.
"It's a huge market, and that's where the West faces competition," she added. "If you look at generic sales compared to sales of Western drugs, in terms of volume, generics make up almost 90 percent of total sales."
Beyond generics, counterfeit products and traditional remedies, Schmid noted another difficulty in increasing sales - the general population's inability to pay for pricey medicine. The Chinese government does very little in the way of reimbursement.
"I think that rate-limiting steps are not perhaps the number of potential patients, because if that were the case the world would be every pharmaceutical company's dream," he said. "The reality is that there are probably very few people, partly because products are not reimbursed by any government-owned institution or insurance firm, who can truly pay for an imported product."
De Lima said that, according to a World Health Organization report, in 2001 the per capita Chinese government expenditure on health (in international dollars) was 4 percent of the expenditure in the U.S. Also in the same year, out-of-pocket health care expenditures in China were 95.4 percent of total private expenditures. In the U.S., the figure was 26.5 percent.
Nevertheless, SciClone expects Zadaxin's use to remain steady in China. Longer term, the company hopes to move it into the U.S., Japanese and European markets. Zadaxin remains in two Phase III trials in the U.S. for hepatitis C, has completed a Phase III study in Japan for hepatitis B, and is in Phase II trials in the U.S. and Europe for cancer. It is partnered with Schering-Plough in Japan, and with Rome-based Sigma Tau SpA in Europe.
In the meantime, SciClone continues to eye the Chinese market. Schmid said the company is looking to in-license a liver cancer product for use there, leveraging its current sales force capabilities.
"We'd love to expand a little bit within China in the treatment of liver cancer," he said. "One of the things that we would like to do, if we could, is give our sales force the opportunity to position Zadaxin in the No. 1 detailing position and have another complementary product as No. 2."