The rising costs of drug development in the United States and Europe are astronomical, and despite technology developments the success rate continues to be abysmal. As pipelines erode and patents expire, MNCs will be forced to exploit new regions for development. The markets in India and China are ripe for taking clinical trial because the costs are approximately a tenth of those in the United States, and scientific experts can be hired at modest salaries. The challenges of legal integration with WTO standards for capital investment and intellectual property protection are posing risk.
Investments
Multinational drug companies have been attracted to China and India by the lower cost structures and the large local markets (which are among the fastest growing worldwide). But despite the potential for cost savings and growth, MNCs are cautious about their current and future investments in the two territories. Data security and counterfeiting were perceived as serious business risks. China's policy is to attract investment by foreign technology-oriented companies. Yet much of pharma's investment in the country has focused on downstream activities, such as marketing. Pharma operations in India are more vertically integrated than they are in China.
R&D and technology
Research-based life sciences companies worry about the security of their products and patents in China and India. Chinese and Indian generic drug manufacturers account for a sizeable chunk of the local pharma industry, and prove a source of cheap medicines. Counterfeiting and data security are other business risks identified by pharma respondents. Large majority of Chinese pharmaceutical companies lack the resources and knowledge to undertake the necessary R&D to create new products. New technologies for drug discovery and clinical development coupled with rising costs provide tremendous impetus to research without borders, though India is ahead of China in terms of technology.
Regulatory environment
In the Asian countries, the risks associated with IPR infringement, brand protection, trademark and copyright infringement, and counterfeit drugs pervade in all aspects of the pharma operation. The pharmaceutical industry is concerned about the endemic operating risks of emerging markets, and China and India are no different in this regard.
Alliance opportunities have increased in both China and India since their entry into the World Trade Organization (WTO). Alliances drive knowledge acquisition and revenue opportunities from domestic companies. China's and India's emerging biotech sectors have formed a new pool of targets due to slow regulatory reforms.
Monitoring employee compliance represents a significant expense, while motivating a local sales force, training local supervisors, and managing relations with distributors, policymakers, and bureaucrats requires highly skilled executives with an understanding of both the local culture and the international marketplace. This is true in both China and India. From dealing with a unionized workforce in India to navigating the somewhat opaque regulatory and legal environments in China, is a daunting array of operational risks.
Rising global competitors
Increasing scale and the growing pressures of health care cost containment will fuel the globalisation of domestic enterprises. The domestic pharmaceutical companies in China and India are considered direct competitors in the domain of bulk pharmaceuticals and are experiencing fierce competition based on price reductions. They will continue to pose competition for multinational companies in the generics markets, and will serve as a source for low-cost raw materials and active pharmaceutical ingredients (APIs).
Influencing traditional medicines
In Asia, complementary alternative medicines such as acupuncture and medicinal plants have been a source of preventive as well as curative therapy and a proportion of socioeconomic segment of Chinese and Indian society incorporates traditional medicine into their healthcare regimen. Western countries increasingly are turning to Traditional Chinese Medicine (TCM) remedies. Ayurveda and homeopathy form a part of Indian traditional medicine and is gaining acceptance in western countries. The more common form of TCM in these markets consists of acupuncture and dietary supplements. More than 14,000 TCM clinics have been set up in France, Britain, Canada, and Australia. Gradual acceptance is posing a significant risk for the western medicines market in both the countries.
Outlook
The Chinese pharmaceutical market is expanding at a greater pace and is projected to be valued at US$25 billion by 2007. In spite of the challenges of legal integration with WTO standards for capital investment, intellectual property protection and investment risk, China and India hold the potential to become two of the most significant drug markets of the new century. The rapid modernization of their economies, liberalization of protectionist laws and regulations, and the human capital developed through unwavering commitment to education, are compelling domestic and multinational pharmaceutical companies, to rethink their global strategies to explore the pharma markets in these countries in coming years.
(Compiled at Cygnus Business Consulting & Research)