UPDATE 1-INTERVIEW-China seen fertile for pharmaceuticals

Published: 22 Jul 2009 17:19:23 PST

* Hep B drugs have blockbuster potential

* $24.5 bln market to possibly triple by 2013 (Recasts, adds details on priority drug list)

NEW YORK, July 22 - China's $124 billion plan to provide basic health coverage for the vast majority of its 1.3 billion citizens by 2011 is creating opportunities for large drugmakers, a specialist on China's pharmaceutical market said.

With sluggish growth in the United States and Europe, many large pharmaceutical companies are expanding sales forces, distribution channels and research operations in China to tap into the country's robust drug market, Mandy Chui, a consultant with IMS Health Inc, said in an interview this week.

Chui said China's drug market is expected to expand at about 22 percent annually over the next five years.

"We see companies continuing to invest in China," Chui said. "For companies, (China's growth) is certainly a good story to tell to the Street, right?"

Chui, based in New York, is the China expert at IMS Health. IMS provides market data on the pharmaceutical and healthcare industries, and is headquartered in Norwalk, Connecticut.

She said that China's aging population, adoption in parts of the country of Western lifestyles and rapid urbanization in certain areas are giving rise to hypertension, obesity and other diseases.

That, Chui said, positions China to become the world's third largest pharmaceutical market by 2013. It currently ranks No. 5. The $24.5 billion market is expected to swell to $68 billion to $78 billion by 2013, she said, leaving it behind only the United States and Japan.

"It's like a big wake-up call. If they (large pharmaceutical companies) are not in there at this point in time, all of them are not going to grow," she said.

Chui said European drug makers such as Bayer AG, AstraZeneca PLC and Sanofi-Aventis SA had taken the lead in the race for market share in China, and that U.S. drug makers were eager to catch up.

Pfizer Inc's Chief Executive Officer Jeff Kindler said in an interview on Wednesday that China was an increasingly important priority for Pfizer, the world's biggest drugmaker.

"Not only is it necessary to be there, we are there," Kindler said. Pfizer is aiming to make vaccines a large part of its effort in China.

Chui said drugs for diseases commonly seen in China, such as hepatitis B, have blockbuster potential.

An estimated 30 million Chinese have active infections caused by hepatitis B. The virus can lead to cirrhosis of the liver and liver cancer.

Some pharmaceutical companies are gearing up to treat hepatitis B, which kills more than 300,000 Chinese each year, Chui said.

Bristol-Myers Squibb Co's hepatitis B drug Baraclude, introduced in 2006, leads the hepatitis B market in China, Chui said.

Other drug companies in that market include GlaxoSmithKline PLC and Schering-Plough.

Chui said that no pharmaceutical companies operating in China, including Chinese drugmakers, have blockbuster products. However, she said some could achieve that status within five to 10 years. A blockbuster drug typically has sales of $1 billion or more a year.

BRANDS VS GENERICS

Branded drugs are favored over generics at large city hospitals in China -- even generics of brands that have lost patent protection -- because the quality of brands is often seen as being better, Chui said.

However, elsewhere in China, especially in rural areas, generics are favored over more expensive brand name drugs from the United States, Europe and Japan.

Chinese companies, for example, are anxious to produce a generic form of Baraclude once patent protection expires, Chui said, adding that more than 30 companies had submitted applications to make the generic version of the drug.

Chui said she had been told by industry sources that patent protection on the drug would expire in 2011.

Asked about Baraclude's patent, Bristol-Myers spokesman Brian Henry said, "We have patents in force and patents pending in China (for Baraclude). We do not comment about potential competitors."

Chui said China plans to pare down its list of 400-plus "essential" drugs, which are given priority in all medical facilities, to between 200 to 300, "with a tendency to remove more-expensive branded drugs."

The list is expected to be complete sometime this year, she said.

Multinational companies have 30 percent of China's pharmaceutical market, while local companies have 70 percent, according to Chui. "Five years from now, I don't see any substantial change (to that ratio)," she said.

Top-selling drugs in China made by multinationals include blood-clot preventer Plavix, ulcer drug Losec, oral diabetes treatment Glucobay, the Novolin brand of insulin and antibiotic Avelox.

China's plans to build 2,000 new county hospitals and upgrade 30,000 township medical centers.

Chui said expanding its medical infrastructure would benefit manufacturers of medical devices and vaccines and companies specializing in medical imaging, diagnostics and electronic medical records.