Made-in-China Medicine Testing the World Market

Many pharmaceutical companies in China are hoping to pass major international certifications, such as certifications from the WHO, EU and Australia. "It is likely that 20 pharmaceutical companies can obtain international certifications this year," said Mr Yu Mingde, a vice-director of China Pharmaceutical Enterprises Management Association.

Temptation from the outside

2007 was another record year for China's western medicine export value, up 56% to US $ 784 million. However, most medicines that went to big markets such as Japan, Korea and Australia were products from foreign companies in China, mainly in the form of export processing trades. Products made by domestic Chinese companies were exported to low end markets such as Nigeria and Pakistan. As Chinese pharmaceutical companies are still weak at proprietary R&D, most of their products are generic copycat drugs.

Yu revealed that "the big three markets of EU, US and Japan have different market systems to ours. For the same generic drug, profits from selling to the big three markets are 5-8 times of those in China." A more pressing issue is that almost half pharmaceutical companies in China currently have idle capacities.

On one hand it is the high profit from international markets, on the other are the capacity surplus and vicious competition in the domestic market. It is not hard to see why the Chinese government has been emphasizing medicine exports in its healthcare industry planning, and "going out" has also become a consensus in the Chinese pharmaceutical industry.

Access to the markets

The EU mandates that medicine access permits will only be granted to companies inside the EU jurisdiction. So if foreign companies want to sell medicines to the EU market, they have to establish local branches or find local partners. FDA in the US also has similar requirements.

Yu suggested that for Chinese medicine products to enter EU and US markets, Chinese companies may try arrangements such as local mergers and acquisitions, registration of local offices or seeking local partners, and local partnerships would probably be the easiest. It is understood that those companies whose products have passed the EU certification, such as Hisun Pharmaceutical, Wuxi Kaifu Pharmaceutical and Shanghai Tianping Pharmaceutical, have all chosen the partnership path.

Yu, who has 30 years' pharmaceutical management experience, pointed out that regulations, processes and even social cultures in foreign markets are "very different" from China. He suggested that for Chinese companies that are "testing water", in light of the reality of a few foreign distribution channels, they can temporarily choose the OEM (original equipment manufacturing) or commissioned processing paths. Only when they become more sophisticated in this area, they may then go for mergers and acquisitions, local entity registration and brand building.

Zhejiang Reachall Pharmaceutical's fast-track FDA approval in the US was a good example of smart leverage. In early 2007, a big American pharmaceutical distribution company approached Reachall, requiring it to produce ointment products for the North American market. After a series of inspection, research and negotiation, a long term cooperation agreement was signed …