Pfizer Wins Landmark Viagra Ruling in China
Published: 05 June 2006 A Chinese court has overturned an earlier decision by the State Intellectual Property Office (SIPO) to invalidate U.S. drug-maker Pfizer’s intellectual property (IP) relating to Viagra (sildenafil citrate), amid a patent challenge from the ‘Weige Alliance’ – a grouping of 12 local manufacturers who produce generic versions of the blockbuster erectile dysfunction (ED) treatment.
It is tempting to consider the decision as heralding the entry of China’s pharmaceutical industry into a modern, regulated environment, five years after the country joined the World Trade Organization (WTO) and signed up to Trade-Related Aspects of Intellectual Property Rights (TRIPS) standards. The ruling also coincides nicely with a notable upsurge in investment in IP-sensitive R&D operations from Big Pharma in China, including the US$100 million three-year strategy announced last month by AstraZeneca (U.K.). However, problems remain in implementing protection for patented products.
The decision also comes at the same time as reports of a tenth death in China’s northern Heilongjiang province linked to a fake version of cholescystitis and gastritis treatment Armillarisni A. The uproar caused by this case will provide a further shift in momentum towards regulating the domestic market and ensuring that counterfeit products are removed from distribution.
China’s IP standards are still tainted by haphazard implementation, whereby certain provinces remain almost entirely exempt from protection; it often relies on public-private partnership initiatives, driven by Big Pharma in conjunction with local police and regulatory authorities. However, the ‘big three’ tier-one cities of Beijing, Guangzhou and Shanghai operate almost as de facto modern, Westernised markets, and the emphasis will now move to channelling these standards into tier-two and even tier-three cities.
The Beijing No. 1 Intermediate People’s Court announced on Friday (2 June) that it has ruled in favour of U.S. drug giant Pfizer, in a long-awaited decision over the company’s erectile dysfunction treatment Viagra (sildenafil citrate), according to an initial report by the Wall Street Journal (WSJ) on 3 June and subsequent confirmation by other media outlets today. The dispute centred on patent protection for Viagra, the world’s first and best-selling oral ED, which was launched in China in July 2000 after a four-year wait for approval. In September 2002, 12 Chinese drug companies formalised a patent challenge against Viagra, in what was a unique case in the country; it was the first time that domestic firms had taken the legal avenue to challenge patent exclusivity, rather than simply ignoring regulations and proceeding with generic production. They formed what was called the ‘Weige Alliance’, after the brand name by which Viagra has regularly become known in China, claiming that the patent is invalid because it does not pass the test of ‘obviousness’ that legally qualifies the treatment as an innovative drug. The Weige Alliance cited six alleged grounds for invalidity, and Pfizer has won on three and lost on one; a Pfizer spokesperson told Global Insight that the other two remain undecided.
The Patent Re-examination Board (PRB) of the country’s State Intellectual Property Office (SIPO) sided with the Weige Alliance in the original July 2004 decision that overturned the patent; the PRB targeted Pfizer’s original patent application to Chinese authorities, claiming that it did not provide sufficient test data. The drug-maker countered by maintaining that the ‘missing data’ was neither required at the time of Viagra’s application nor asked for by patent authorities, and that SIPO was applying its standards retroactively. By September, Pfizer had launched its appeal with the Beijing No. 1 Intermediate People’s Court, and the company retained patent protection until the case was finished. This led the drug-maker to make an immediate and expanded launch of Viagra, as it was one of very few pharmaceutical products in China permitted for sale through retail pharmacies, and not just hospitals. It is now being sold in 2,000 drugstores across the country’s major cities, although the Weige Alliance gained initial approval from the State Food and Drug Administration (SFDA) to market the drug in October 2004. According to the WSJ, the case will proceed to the review board at SIPO that overturned the patent, and there is a 15-day window for appeals.
The announcement will not have a substantive impact on Viagra’s global sales profile, although it comes at a vulnerable time in the commercial life of the drug. Global sales slumped by 11% year-on-year (y/y) in the first quarter of 2006 to US$390 million, largely due to competition from Cialis (tadalafil; Eli Lilly/ICOS (both U.S.)) and Levitra (vardenafil; Schering-Plough/Bayer (U.S./Germany)) in the U.S. market (down 14% to US$197 million). Sales in China have never been able to take off, as the market was inundated with fake versions within months of Viagra’s launch in 2000; by some estimations, up to 90% of Viagra pills sold in Shanghai were fake. However, even patent-protected Viagra sales are likely to prove minimal, and fake Viagra will continue to flood the market; the court decision relates to the legality of generic sildenafil citrate rather than counterfeit products, which, by definition, operate outside the regulated market.
Instead, the primary importance of the court’s decision lies in the signal that it sends out to both the Chinese pharmaceutical industry and Big Pharma. For Big Pharma, it means that there are viable legal and regulatory avenues that it can take in order to resolve disputes of this kind; this may be the norm in regulated markets, but has not previously been the case in China. This validates the decision of drug firms such as AstraZeneca to scale up their investment in the local R&D market; the U.K. drug giant last month announced a three-year, US$100 million investment in Chinese R&D operations, which will probably focus on oncology programmes acquired via the takeovers of Kudos Pharmaceuticals and Cambridge Antibody Technology (CAT). Strategic investment in overseas R&D requires a strong IP environment as a precondition, and while the Chinese market would still not qualify as a ‘safe’ location, the trends increasingly point in a positive direction. Indeed, local investment is now likely to follow AstraZeneca’s model of careful strategic decisions supported by comparatively low amounts of cash.
Still, we are beginning to see the emergence of a full line of operations from Big Pharma in China, with R&D supplementing existing marketing and manufacturing businesses that were created via a series of cross-national joint ventures (JVs) in the 1990s. In addition to AstraZeneca and Pfizer, Swiss heavyweights Roche and Novartis and Denmark’s Novo Nordisk have been the most active investors so far, while other major players such as Bayer (Germany) and GlaxoSmithKline (U.K.) remain largely confined to chemicals and self-medication segments. However, it is increasingly clear that the ‘wait-and-see’ approach is now outmoded, and that the Chinese market is taking giant leaps towards providing regulated comfort zones – not just for the pharmaceutical companies, but for the industry in general. At the same time, demand for Western pharmaceuticals continues to outgrow the government’s best attempts to curtail healthcare spending, and the market again increased by over 20% in 2005, to US$11.7 billion.
Meanwhile, the local industry suddenly needs to face up to the concept of launching generics ‘at risk’, which significantly raises the stakes in challenging patented products. These circumstances provide a strong disincentive for companies to launch generic pharmaceuticals without a clear go-ahead that they are not infringing on existing patents. Thus, market intelligence and understanding of patents will become paramount in China, and this coincides with a rapid upsurge in the number of patent applications filed in China over the last few years; SIPO received 252 applications in 2002 – a number that was almost matched just midway through 2005. It had not previously been entirely clear whether these patents had an effective meaning as an asset base in the absence of clear precedent, and it is precisely this type of assurance that the Viagra court decision provides. It is a starting point, but a strong one.
Ï China: 24 May 2006: SFDA Commences Nationwide Audit of Manufacturing Plants in China following Heilongjiang Scandal
Ï China: 16 January 2006: Fake Loads of Viagra and Cialis Seized
Ï China: 30 November 2005: Outsourcing and R&D in China: Making an Impact in the World’s Fastest-Growing Drug Market
Ï China: 1 November 2005: Pfizer Opens New R&D Centre in Chinese City, to Invest US$25 mil. in Further Upgrades
Ï China: 8 September 2005: Authorities in China Seize Counterfeit Drugs
Ï China: 16 August 2005: Local Chinese Drug-Maker Alleges Insulin Patent Infringement against Eli Lilly
Ï China: 30 June 2005: Drug-Makers in China Raise the Stakes in Ban on Pfizer Drugs
Ï China: 21 April 2005: Cialis Joins Viagra and Levitra on Chinese Market
Ï China: 30 March 2005: Pfizer’s Viagra Court Case Begins in China
Ï China: 25 February 2005: Viagra’s Impotence in China: The Enforcement of Intellectual Property in a Patent-Threatening Emerging Market
Ï China: 19 October 2004: Joint Venture in China Gains Initial Approval for Generic Viagra)
Ï China: 28 September 2004: Viagra Becomes Available to Retail Pharmacies in China as Pfizer Formalises Challenge
Ï China: 7 July 2004: Chinese IPR Office Overturns Pfizer’s Viagra Patent
