One such company is Pfizer. It partnered with Zhejiang Hisun Pharmaceutical Co Ltd to form a joint venture in East China's Zhejiang province last year to develop, manufacture and commercialize off-patent pharmaceutical products in China and other markets. With an investment of $295 million, Hisun owns 51 percent of the company while Pfizer has the remaining 49 percent. Their manufacturing plant is in Fuyang, Zhejiang province, with a research facility in Hangzhou, Zhejiang province, and an administration center in Shanghai.

Tan Lingshi, chairman and general manager of Pfizer (China) R&D Co Ltd, says producing high-end generic drugs is another way to approach the Chinese market because it is more beneficial to patients from different levels of income.

"There are a lot of generic drugs being used in the Chinese market. But it depends on who are making them and what kind of credibility they have. If generic drugs are being produced by foreign companies with strict quality control, consumers in China will be more inclined to choose those drugs," Tan says.

Chinese drug producers, meanwhile, are working to safeguard their share of the county-level market. Shanghai Pharmaceuticals Holding Co Ltd is among the local companies that have formed joint ventures with foreign drug manufacturers and have invested heavily in developing Western drugs, Chinese patented drugs and traditional Chinese medicine. It has established a number of alliances with international pharmaceuticals such as Roche, the Swiss healthcare company, and has developed partnerships with Swiss multinational Novartis and German's Bayer.

In 2011, Guangzhou Pharmaceutical Holdings Ltd joined with two Australian drug companies to establish a registration and sales center for traditional herbal medicines in the country.

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But Thermo Fisher Scientific Inc, a healthcare equipment company based in Massachusetts, is taking a different tactic. It is helping Chinese pharmaceuticals in the competition against foreign healthcare companies.

"As big multinational companies are heavily invested in China, Chinese pharmaceutical companies are optimizing their resources and readjusting development models to maintain the county-level market share while they still dominate it," says Mike Shafer, Thermo Fisher's president in China. "This gives us an opportunity to sell more instruments and technical service for healthcare products.

"We have launched a program focus on (traditional Chinese medicine) that basically talks about everything such as herb-originated bioactive substances and separable analysis of TCM ingredients. So this could be an integrated workflow and solution for a number of Chinese companies, which has become one of our priorities in China," he says, "because TCM and Chinese patented drugs are still favorable options for Chinese patients in county-level markets."

Thermo Fisher gained $600 million revenue in China and added 300 people to its China research and production teams in 2011. With a $30 million investment in the Chinese market, it established its sixth plant in Suzhou, Jiangsu province, last November to manufacture medical equipment.

One of the major issues for foreign drug producers in China is counterfeit medicines and syringes with their logos on it. Many medical products in China look similar to their products but are actually made from Chinese brands, especially in third-tier and county-level markets.

John C. Lechleiter, chairman, president and CEO of Eli Lilly, says China needs to further strengthen its control on intellectual property rights, considered a prerequisite for internationally based pharmaceuticals to spend billions of dollars on a market.

"A transparent system of protecting intellectual property rights is the foundation that could attract foreign drug manufacturers to make a considerable amount of investment to develop new products and technology. The benefit will be mutual," Lechleiter says.

Li at Peking University's Health Science Center says that while foreign companies are proficient in getting their products into China's top and second-tier cities, they must be aware that pricing is the key to win in the county-level markets.

"Foreign companies should also identify their key advantages to influence China's low-tier markets, including sales tactics, scale, manufacturing capability and quality," he says.

zhongnan@chinadaily.com.cn

(China Daily 01/25/2013 page12)