India or China?

India or China?

Indian and Chinese pharmaceutical markets might pose tough competition for each other, but at the same time, both are promising yet challenging bets for the global pharma industry. Sushmi Dey compares these two pharma markets on the basis of their distinctive features

On a recent trip to China, I was surprised to find the contrast between the first impressions of China and India. It can easily lead anyone to think or rather conclude that there is simply no comparison between these two emerging economies of the world market. In an absolute contrast to what you see in Indian airports, railway stations, roads and buses, China projects an image which is absolutely clean, spacious and fast.

You are left wondering if that is the end of the story or perhaps there is something more to the reality. Undoubtedly, there is more and that is the point we begin with.

Famous author Jeremy Siegel, with an insight into matters affecting the financial markets, says that when ranking the two countries, India and China, on infrastructure—roads, airports, and new buildings, China looks like a ten and India hovers close to a zero. But then one is wonders why anyone would consider investing in India over China. The increasing cost of scientific research in the West has led to a shift of focus towards East. In the process, India and China have attracted a lot of attention. Both countries provide a vast and inexpensive talent pool, science base, quality of potential partners, infrastructure tax benefits and resources.

While India has become an increasingly popular place to carry out clinical trials, in recent years China has also become a preferred base for setting up R&D operations accelerating foreign investments in the country. The positioning of the Chinese market in the world scenario is also a major factor leading companies to the country. While India is expected to be amongst the top ten pharma markets by 2020, China is a step ahead. China is considered to be one of the fastest growing economies and this is evident from the estimates as well. Although, presently it is the ninth largest drug market, it is forecasted to become the second largest by 2020. Experts believe that this growth rate is a major factor attracting the attention of MNC pharma companies. “Chinese drug market is the second largest market for active pharma ingredients (APIs), a fact that cannot be ignored,” asserts Hu Kun Ping, Vice-President, Reed Sinopharm Exhibitions (RSE), who recently organised API and Interphex China in Shenzhen.

  1. The best near term opportunities in both countries are chemistry—phase activities and clinical trials, although India has more complete service offerings in these areas.
  2. Pre-clinical and biology activities represent medium and long-term opportunities, respectively, with China outpacing India in innovative biology.
  3. Government backing for biopharma R&D, although it has been increasing impressively in India recently, remains far more committed and generous in China.
  4. India has a more extensive vendor base, a work force fluent in English, and generally better IP protection.

Significant differences between India and China as offshoring destinations lies in their overall value propositions—

  1. India offers multinational pharma companies (MPCs) a fairly fast and long lasting payoff by turbocharging their R&D productivity quickly and sustainably.
  2. China invites MPCs to place a strategic bet on increasing their share of the burgeoning commercial market for pharmas in both the near and the longer term.

Complimentary drawbacks?

For years, China has attempted to maintain a vast manufacturing base and the move of Big Pharma towards Chinese pharma market is not a new phenomenon. Many MNC pharma companies have already invested in China for a long time. Inspite of this, the fact remains that India is extremely advanced in terms of pharma technology and hence quality of its products. Experts opine that China lacks the legal expertise and management vision and that is a major fallout in comparison to Indian drug markets. However, the increasing interest of MNC pharma players has helped fuel China’s economy and raised the bar for manufacturing quality. “The Chinese government has recently taken active steps to calibrate domestic research and development capabilities with world-class standards,” informs Hu. According to Ranjit Shahani, Vice-Chairman and Managing Director, Novartis India, the acceleration of investment from pharma companies in China is a result of the country becoming a member of WTO. He believes that China’s effective endeavours to better protect intellectual property (IP) rights have led to more favorable conditions for the industry, which in turn has attracted investments to the country. Agrees Utkarsh Palnitkar, Partner-Transaction Advisory Services, Leader -Policy and Investment Advisory Services, Ernst&Young, “In March 2006, the Chinese Government announced the establishment of a new civil court, which will handle piracy on a national level. The Judicial Court of Intellectual Property, which will operate under the auspices of China’s Supreme Court, will hear IP lawsuits filed by local and foreign multinational companies,” informs Palnitkar. According to Palnitkar, the stated intent of China’s State Intellectual Property Office (SIPO) to complete a National IP strategy by 2007 and the expected third amendment to China’s patent law by mid-2007 also suggests the rationale behind the interest of MNC pharmacos investing in China. However, experts maintain that although IP protection is improving, there are still gaps in China’s policy on data exclusivity and issues with illegal counterfeits.

Another major drawback is the fragmented drug market of China. Inspite of the high growth rate, Chinese pharma market is still mainly dominated by domestic pharma manufacturing companies. Estimates say that the market comprises of 70 percent local and 30 percent MNC pharmacos. According to Shahani, leading players only have two percent share. The distribution system in the country is also a major challenge for companies planning an investment.

China

India

Biology research Status: some capabilities, rapidly evolving 1) Innovative capabilities, mainly with government institutes 2) Established skills in basic molecular biology and protein expression 3) More than 100 small companies offering multinational pharma companies (MPCs) some modest services 4) Innovative research in stem cells, biochips, and gene sequencing

5) Expanding biology talent pool

Status: few capabilities, evolving 1) Few innovative capabilities, mainly with government institutes 2) About five companies with proven skills in basic molecular biology and protein expression 3) Few MPCs present, mostly with captive biology investment 4) Innovative research focused on bioinformatics and biochips

5) Limited biology talent pool owing to historic focus on generics

Chemistry research Status: good capabilities in basic services, evolving toward more complex offerings 1) Capabilities residing mostly with government institutes; only a few small private companies with a track record 2) Established basic chemistry skills moving to more complex offerings, but no end to end capabilities

3) Large and growing pool of raw talent, but limited English language skills still an issue

Status: strong and proven capabilities, moving toward end to end offerings 1) Large pool of vendors with full services and track record of strong capabilities 2) Extensive MPC activities with top tier vendors 3) Generally better IP protection than in China 4) Trend toward project based alliances and emerging build-operate-transfer (BOT) contracts

5) Vast pool of skilled and low cost chemists

Pre-clinical trials Status: emerging capabilities, evolving 1) Basic capabilities in preclinical trials in rodents 2) Capabilities residing mostly with government-sponsored institutes

3) Only 20 labs with good laboratory practice certification; new regulations should boost that number

Status: emerging capabilities, rapidly evolving 1) Good capabilities for preclinical trials in rodents, limited for dogs, almost none for primates 2) Capabilities residing mostly with Indian pharma companies, developed through in-house R&D programs (cumulative track record of 37 new chemical entities as of the end of 2004) 3) Only six GLP-certified labs, another 12 awaiting certification

4) Government increasingly supportive and relaxing hurdles, though restrictions persist

Clinical trials Status: fairly strong capabilities, fast growing 1) Experienced contract research organisations and growing vendor pool providing full spectrum of services 2) High quality FDA-approved hospitals exist 3) Several MPCs conducting global trials at Chinese sites 4) Low-cost and efficient enrollment compared with the US and Europe

5) Trial approvals lengthy and complex

Status: strong capabilities, fast growing 1) Experienced CROs with full service range and output of similar quality to that of developed markets. 2) Very strong data management capabilities and track record 3) Many MPCs conducting global trial activities 4) Greater advantage in cost and patient enrollment than in China 5) Shorter trial approval times than in China

6) Uneven infrastructure and shortage of clinical research assistants might hamper future growth.

(Source: Boston Consulting Group analysis)

Collaborate to grow

However, Hu believes that both India and China, have tremendous economic prospects. “Increasingly, we are seeing greater interdependence between both the countries. Topics addressed at conferences these days include collaborative efforts between the two regions for meeting global API demand and creating successful business models for foreign exporters,” says Hu drawing from her experience. China Pharmaceutical Industry Association (CPIA), in their recent report “Market Analysis on Chemical Pharmaceutical Industry” published in 2007 states that India is the largest importer of Chinese pharma products. Demand from India continues to grow rapidly, up by 61.2 percent in the first three quarters of 2007. Chinese exports to India have exceeded those of the United States by more than $100 million.

Where the best opportunities lie, in India or in China, is a difficult question for the global industry to answer right now. While both the economies are booming and projecting a promising future for pharma industry, both have drawbacks to improve upon. However, a report from Boston Consulting Group on tapping China and India says that while R&D activities currently off-shored to India and China have been initiated in an ad hoc and uncoordinated way, future efforts should be more conscientiously managed and as part of an integrated engagement strategy.

sushmi.dey@expressindia.com