What could be the problems nowadays boggling the minds of multinational drug makers? The approaching patent expiration is undoubtedly an immediate one. It is not hard to sense it from interviews over the past two years with the drug multinationals that are struggling to find a way out by minimizing potential losses.

 

Some say the past decade, from 2001 through 2010, was a peak period for the expiration of pharmaceutical patents throughout the world. Some multinationals saw half of their patents expire, including individual drugs that have reached billion dollar sales figure. Between 2011 and 2015, another batch of patents will expire, covering a net value of 77 billion dollars. The U.S. healthcare reform, some project, may cost an estimated thousand billion dollars over the next 10 years. These numbers have not only sensitized those multinationals, but also agitated Chinese medicine businesses.

 

The difficulties of the patent-holding multinational drug makers may be an unusual window of opportunity for the development of Chinese medicine, and a chance to go on the offensive in the international arena. These arousing words do make the blood boil, but when the head is cooled, it is not difficult to see that the situation is no more encouraging for Chinese medicine market than an unprecedented threat to the imitation generic drugs, which are the bread and butter for the Chinese pharmaceutical industry. Many international drug makers, in face of the crisis, have reportedly poured huge amounts of capital into India, China and other countries to build factories for imitation generic drugs, to cover their immense R&D overheads.

 

 

The illusions of internationalizing Chinese medicine, which as promised, never came into being; a reality that left many businesses covered with cuts and bruises. “Since the 1998 implementation of the Action Plan for the Scientific and Industrial Modernization of Traditional Chinese Medicine and the inauguration of modernizing Chinese medicine, most efforts in medicinal research were focused on the substance foundations and effects of Chinese medicine, in the hope to prove and verify known results,” said by Lv Guiyuan, who worked on traditional Chinese medicine research for more than 20 years. “However, looking back on it for the past ten years, it is not difficult to see that new Chinese medicines with exceptional characteristics or prominent effects are all but a few.”

 

A few months ago, Fosun Pharm announced that it has proposed, jointly with Hanmax Investment, a privatization plan to the NYSE listed Tongjitang of Guizhou (TCM.NYSE) to buy out the latter. The internationalization dream of the once reputed as “China’s first stock,” was thus shattered.

 

Tongjitang is a Chinese medicine conglomerate integrating the operations of research, production, sales and planting. On March 16, 2007, it successfully premiered in the U.S. stock market, becoming the first Chinese pharmaceutical company on the NYSE, and renowned as “the first Chinese medicine stock.” But it did not perform well on the U.S. market due to a lack of understanding of Chinese medicine. Over the years, it remained below the $10 IPO price for the most part, except for a brief moment where it reached $12.88. On the eve of withdrawing, at the closing on April 7 Chinese local time, it was listed as $3.78, under 10 fold P/E ratio, a sharp contrast to the common 30 or 50 fold on the domestic market.

 

In the majority view, the withdrawal of Tongjitang, the “first overseas stock of Chinese medicine”, illustrates the fact that Chinese medicine industry has not been recognized by the western mainstream, which has been evidenced by a set of relevant data: Asian market that shares the Chinese culture is the main outlet for Chinese medicine export, taking up 65.76% of the total Chinese medicine exportation, of which a notable 80% is healthcare or food products rather than medicinal products. While evading European and U.S. drug administrative and other authorities, and thus being depreciated in value, Chinese medicine, cloaked in the guise of healthcare and food products, cannot be included within the scope of drug internationalization. The modern international certification standard is made for Western medicine, and thinking of changing it would an empty dream. In addition, many of the unique preparation methods of Chinese medicine confine it to a “home-made” style. For example, the traditional Chinese medicine products that used cinnabar inevitably contain heavy metals, which are considered safe and effective by Chinese medical science, but are unacceptable under international standards.      

 

Zhang Ping, assistant general manager of Tianjin Zhongxin Pharmaceutical Group Co., Ltd, stated that the Chinese-Western cultural differences are the biggest road block to internationalization of Chinese medicine, as the two medical system were derived from two different cultural backgrounds. The Chinese and Western medicines are in some ways like apples and oranges. The chemical composition of Western medicines is limited, and they can be accurately determined. But Chinese medicines are not. They are made of compounds, comprising hundreds of thousands of chemical elements, and science has so far not been capable of ascertaining its chemical components. This is a great obstacle for Chinese medicine exports. Although herbal drugs have been flourishing around the world, Chinese medicine is essentially different from Western medical standards.    

 

Chinese medicine was saved from being marginalized only because more Chinese people began to pay attention to it in the past couple of years. The major difficulty for Chinese medicine enterprises is innovation, which involves huge investment and risk. There are many problems for research and innovation in Chinese medicine, such as hard formula selection, long cycle, large investment, high risks, high research condition requirement and more. Even after successful research into a new medicine, because of lack of popularity and brand familiarity, exploiting the market takes a long time and requires huge efforts. The early losses will be severe, so enterprises without long term strength can’t put it to use. Innovation puts enormous pressure on the enterprises, but without innovation, the enterprises can’t develop. Entering into the international market is not the only outlet for the enterprises.

 

Yunnan Baiyao Group is a relatively daring one among Chinese medicine enterprises. By constantly changing the forms of Yunnanbaiyao medicine, Yunnan Baiyao Group developed a range of derivative products such as Yunnanbaiyao cream, Yunnanbaiyao spray, Yunnanbaiyao band-aid, Yunnanbaiyao capsule and other products to meet the different requirements at different times and for different people, which lead to its success. The sales income of Yunnanbaiyao spray is about 200 million Yuan while the income created by transdermal agent (both Yunnanbaiyao cream and bandage) is higher than 200 million Yuan. Furthermore, Yunnanbaiyao band-aid becomes the second largest brand in China, which is a direct threat to the bandage sales champion brand - BAND-AID. Yunnan Baiyao Group also expands its business into the household chemical industry and enters into the market by changing the carrier into toothpaste and facial mask. In just three years, the sales volume of Yunnanbaiyao toothpaste broke 0.6 billion Yuan.

 

Actually, many Chinese medicine enterprises with time-honoured brands have expanded their businesses to overseas markets as well; for example, Beijing TRT, Shandong Dong-e E-Jiao Group, Henan Wanxi Pharmaceutical and more. But the areas they choose are Japan, Korea and Southeast Asia, because these areas that have a large population of the Chinese, the traditional Chinese medicine culture can be accepted more easily.

 

Xiao Wei, chairman of Jiangsu Kanion Pharmaceutical, considers that many pharmaceutical enterprises of chemical drugs in China are making innovations now, and some of them have original research drugs. However, he believes Chinese medicine will achieve relatively fast breakthroughs on innovation in the future. Firstly, China has rich resources of Chinese herbal medicines. For Chinese herbal medicines, using techniques to extract and separate the effective ingredients, making proper structural modifications, some even don’t need modification, they just need to be purified and refined so that safe and effective new drugs can be produced from them. Secondly, China has a large number of classic, famous and ancient prescriptions which have been proven safe and effective by thousands of year’s clinical application and continuous improvement. On this basis, using advanced preparation technology to improve dosage forms, combining the theories of modern pharmacology and pharmacodynamics and coupled with strict quality standards, many promising new drugs are expected to appear. 

 

In addition to the fear of the huge resource input required by research and innovation, traditional Chinese medicine enterprises depend on generic drugs to survive because intellectual property rights protection of traditional Chinese medicine in China doesn’t provide favourable support. The intellectual property rights protection of traditional Chinese medicine in China is carried out by the current Patent Law of the P.R.C., Trademark Law of the P.R.C., Copyright Law of the P.R.C. and other intellectual property laws. There is no special intellectual property rights protection organization established by the government for traditional Chinese medicine, which lead to the scattered situation of traditional Chinese medicine research. The laws are not ideally established and the protection from the government is not strong enough. For instance, the inventors of traditional Chinese medicines can apply for traditional Chinese medicine patent protection or administrative protection by themselves according to Patent Law of the P.R.C., but there is no matching policy to support the right. When a new product is successfully researched, it will be imitated and produced repetitively by other enterprises, which dampens the enthusiasm of the research enterprise and effects the whole industry’s motivation to innovate.

 

In fact, many leaders of the traditional Chinese medicine enterprises clearly understand that the development of an enterprise can’t go beyond innovation, but what they understand even more clearly is the cost they will pay for innovation. Therefore, innovation of most enterprises remains just a thought. Maybe when the rules and regulations are clear and the overall system of traditional Chinese medicine development links together to form a smooth chain, perhaps enterprises will dare to walk forward. IP