Virility test

A population of 1.3 billion people paints a picture of a country facing untold challenges, but impotence would not readily suggest itself. Yet China has effectively turned Pfizer's Inc's Viagra erectile dysfunction antidote into a weapon to challenge the world's intellectual property rights (IPR) system, revoking the drug giant's long-recognized patent on a product, which has already been plagued by massive patent infringement by Chinese pharmaceutical companies up and down the country.

The move by the State Intellectual Property Office (SIPO) is doubly odd coming in the midst of China's ongoing campaign for market economy status. It looks to the outside world as if Beijing has graduated from tolerating stealing to officially sanctioning it.

The decision has since inspired yet another group of Chinese pharmas to challenge UK-based GlaxoSmithKline's patent for one of its anti-diabetes Avandia drug. That hearing was set to begin August 18. China's A-share market aside, nothing moves slowly in the People's Republic. By early August, a group of 17 Chinese pharmaceutical makers had agreed to set up a joint venture to produce an erectile dysfunction drug, according to the Beijing Morning Post, a move inspired by the decision against Pfizer. The consortium is to be headed by Tonghua Hongtaomao Pharmaceutical Co Ltd and it aims to produce and sell look-alikes for half Pfizer's Viagra price – RMB 40-50 a tab instead of RMB 99. Sounding a little like the head of a new cartel in one report, Zhang Yucai, chairman of Tonghua Hongtaomao, said the alliance would unify production and sales of the drug.

By Pfizer Chairman and CEO Henry McKinnell's account, 90% of the "Viagra" sold in China is fake so early July's decision by the SIPO to revoke the company's China patent – in response to complaints filed by more than 10 Chinese companies – was really rubbing salt in a gaping wound. Pfizer had three months to appeal, and immediately said it would do just that.

As with China's software industry, bludgeoned as badly as America's by rampant stealing, IPR might not take root in the drug sector until Chinese pharmas themselves decide they need protection for their own good.

One unidentified SIPO official quoted in news reports said Pfizer breached China's intellectual property laws when it failed to explain the properties of sildenafil citrate, the drug's active ingredient, even though it had passed the descriptive test when SIPO recognized its patent claim in 2001.

Pfizer's McKinnell said he was "extremely disappointed" with SIPO's decision during a factory opening in Singapore. Urging Beijing to get serious about protecting intellectual property rights, he warned that if the decision was not reversed, Pfizer would very likely rethink future investment plans.

A call to the company's Beijing headquarters drew a muted response to questions on how the company was proceeding on that front, a spokesman warning that all questions would be channeled through "legal" which probably meant queries would go unanswered at this point, a guess that proved right.

The other odd feature of the piece is that Beijing is not feeling especially well disposed to the drug industry right now. Half the 5000 manufacturers and distributors in it lose money. In another move aimed at shaking out the losers and consolidating the sector, the National Development and Reform Commission in June ordered a 30% price cut on 24 varieties of antibiotics, a move that would make life especially miserable for makers of generic antibiotics such as tetracycline and ceftizoxime, both heavily prescribed in state-owned hospitals.

"The Viagra decision, if upheld, would mean Beijing has walked away from the world's efforts over the past decade to enforce intellectual property rights in China," said a former policy at the Office of the US Trade Representative, in an early August Financial Times viewpoint.

With the Glaxo challenge, that's two trade blocks China has now managed to upset – and two major investors turned off. Bruce Richardson of Evolution Securities China in Shanghai wondered if the whole issue wasn't just another case of China permitting something when officials really didn't fully understand what they were allowing, then suddenly withdrawing the deal once they grasped the dimensions of the opportunity. "There have got to be a lot of behind-the-scenes meetings going on now," Richardson said.