Stiff competition

New players take on Pfizer’s drug in China

A box of Viagra is seen in a pharmacy in Toronto

For Beijing’s policymakers, the fact that a product is ‘Made in China’ is no longer sufficient. Conceived in China is what they really want. And that phrase could be about to take on new meaning, following the expiry of Pfizer’s Viagra patent in the Chinese market.

National Business Daily says 11 local companies have applied for licences to launch erectile dysfunction (ED) drugs in the local market. The newspaper calculates the market could grow tenfold to Rmb10 billion ($1.6 billion) as men formerly unable to afford foreign drugs like Viagra switch to domestically-produced generics.

The news report, published at the start of the month, prompted a surge in the stock prices of the listed companies at the head of the licencing queue.

Guangzhou Baiyunshan Pharmaceutical’s share price rose 9.6% in Hong Kong the following day. It hopes to have its product in pharmacies by the end of the year, pending China Food and Drug Agency (CFDA) approval. In preparation for the launch it appointed Ferid Murad (the Nobel prize winning scientist known as the father of Viagra) as president of its research institute in 2012.

Likewise, Shanghai-listed Jiangsu Lianhuan Pharmaceutical has been battling for years to get its ED drugs into local pharmacies. Its share price shot up 17.3% over the course of two trading days following National Business Day’s report, before being suspended.

In the mid-noughties Pfizer won a legal challenge against Jiangsu Lianhuan and Beijing Health New Concept Pharma that defended its patent. However, it lost the battle to trademark the brand name by which the Chinese know Viagra – Wei Ge, which means ‘mighty brother’.

Trademark lawyers have long used Pfizer’s experience as a cautionary tale for multinationals developing products for the Chinese market. Pfizer, which likes Latin- sounding, scientific names for its drugs, was slow to grasp the importance of developing a product name for the Chinese market. It only realised its mistake after a local company had registered Wei Ge. Instead, it had to make do with Viagra’s literal Chinese pronunciation – Wan Aike, which has no meaning at all in Chinese (and sounds a trifle rude in English). Trademark lawyers say the mistake means that it has been almost impossible for Pfizer to take on the counterfeiters pumping out fake pills with Wei Ge branding. As a result, fakes were estimated to account for as much as 90% of overall sales in China. (Where legitimate prescription business is concerned, US IMS figures show that Pfizer’s little blue pills had 58.8% market share in China in 2013, compared to 34.4% for Eli Lilly’s Cialis and 6.6% for Bayer’s Levitra.)

Experience from other countries suggests there will be a steep drop-off in Viagra sales now that Pfizer’s patent has expired. National Business Day cites the example of South Korea where the patent ran out in May 2012. By the end of the following year, local competitor Hanmi Pharmaceutical had captured 45% of Korean sales by retailing its own pills two-thirds cheaper than Pfizer, which saw its market share drop to 40%. The pattern was similar in Thailand, forcing Pfizer to cut prices by 30%.

Xi Qing, Pfizer’s director of corporate communications in China, tells the Beijing Times that the US firm will offset the termination of its patent with its strong sales network. He even argues that greater competition will spur wider awareness of ED drugs, enlarging the pie for all.

A Guoxin Securities report estimates that 140 million men in China suffer from ED problems, but that only a fraction have received treatment. Based on Viagra’s current prices of Rmb128 per pill and the total sales of about about Rmb1 billion, the rough estimate is that only 7.8 million pills are being dispensed legally each year.

Another reason why Pfizer might be unfazed is because local studies usually highlight the gap in quality between the generic drugs made domestically and the imported original ones. Pfizer’s Xi argues something similar, expressing great confidence in Viagra’s performance compared to its rivals. Such doubts may steer some customers to stick with the US product. But the pharma giant must also be a little concerned that less affluent Chinese men will still be willing to give the cheaper versions a try.

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