Counterfeits part of 'triple threat' facing pharma in China

Multinational drug companies have three big problems when it comes to operating in China, including widespread availability of counterfeit and substandard medicines and ingredients, claims a new paper.

The report by Daniel Chow of Ohio State University's Michael E Moritz College of Law says that along with counterfeiting, a clampdown on bribery and corruption by the government – which the industry claims is singling out overseas producers – and technology transfer laws that force multinational companies (MNCs) to transfer patents to local companies make up the remainder of the 'triple threat'.

"All of these problems can be traceable to China's rising nationalism and protectionism in its dealings with foreign companies and nations in international business and trade," writes Chow in the paper. "These are not fundamentally business problems but political problems involving the … government system and its leadership."

The bottom line? MNCs are likely to find it difficult or even impossible to overcome the enforcement challenges they face when trying to fight counterfeit and substandard pharma products and ingredients.

He maintains that China is the largest source of counterfeit and substandard drugs and active pharmaceutical ingredients (APIs) in the world, supplying both its domestic and export markets, and these can "cause serious health problems, even deaths, and can subject MNCs to liability for these injuries."

The complexity of modern supply chains – and particularly the use of free trade zones (FTZs) where goods can be finished, assembled and reassembled, and packaged whilst hiding their true origin– as well as local protectionism and uncooperative Chinese enforcement authorities and competing or overlapping bureaucracies are all part of the problem, according to Chow.

For instance, while drugmakers are regulated by the China Food and Drug Administration (CFDA), chemical companies are subject to oversight by the China Petroleum and Chemical Industry Federation (CPCIF) and – as a result – "chemical factories can produce drugs and APIs that do not meet standards set by CFDA and can export these products around the world."

Meanwhile, at the regional level local governments have an incentive to protect exporters, including counterfeiters and makers of substandard drugs and APIs, says the paper.

"From the viewpoint of MNCs, this becomes a problem ridiculed with difficulties. Since this is an issue of bureaucratic in-fighting and political structure within China, it would appear the MNCs would have little influence or power to alter the current situation," he continues.

"For the foreseeable future, substandard drugs and APIs from chemical factories not subject to supervision by the CFDA seem likely to continue to pour unchecked into the international market."