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China Pharma Industry Rises to the Occasion as Viagra Patent Expires

BEIJING (TheStreet) -- The thrill is back for Chinese pharmaceutical companies and their investors because Pfizer (PFE - Get Report) is about to lose its China patent rights for the erectile dysfunction drug Viagra.

The U.S. drug giant's exclusive rights to sell the active ingredient sildenafil citrate under the trade name Viagra expires in China in July. That's expected to clear the way for at least 10 domestic drug makers said to be eagerly waiting to market their own versions of the famous blue pill.

Ironically, the Chinese drug companies preparing for a piece of the action include Shanghai-listed Lianhuan Pharmaceutical and others that fought against Pfizer's patent rights for years in Chinese courts but lost.

Pfizer initially filed for a drug patent in 1994 and eventually got it from the government's State Intellectual Property Office (SIPO) in 2001. But the patent was in legal limbo until 2007, the year an appeals court in Beijing finally ended the legal battle by refusing to let Chinese drug makers sell the medication or use Mandarin-language versions of the trademark name.

Pfizer went on to dominate the Chinese market for ED drugs, which analysts say is currently worth about 1 billion yuan a year. The market is said to have huge untapped potential that perhaps could be reached if pill prices were reduced. The government's health ministry estimates serious ED affects some 40 million men in China.

Viagra reportedly controls about 60% of the Chinese market for ED drugs, compared to a 20% share for the Eli Lilly (LLY) equivalent men's medication and 10% for the Bayer (BAYRY) drug for ED. There's also a big market for herbal treatments in China as well as a black market offering knockoffs. Last September, the government shut down 20 Web sites officials said were selling fake Viagra.

A report about the ED drug market in China posted on SIPO's Web site predicted soon-to-come "China-made Viagra" drugs will be cheaper than the real thing and "are bound to have a huge impact on Pfizer" due to their "competitive advantage." Chinese versions will likely cost about one-fourth what Pfizer charges for Viagra in China. SIPO also said Chinese researchers at state labs have been busy developing drugs to compete against Viagra.

In addition to Lianhuan, Chinese government drug regulators are expected to approve licenses for sildenafil citrate products made by at least 10 companies including Shanghai-listed Baiyunshan and China Pharmaceutical, as well as Shenzhen-listed drug maker Changshan, and the unlisted companies Luxi and Jilin Pharmaceutical. The new drugs could be available within weeks or even days of the patent expiration.

The patent loss in China will further undermine Viagra's once-solid grip on the global market. Pfizer said worldwide revenue fell 8% year-on-year to US$1.88 billion in 2013, mainly because the drug lost exclusive market rights in Europe.

In South Korea, the SIPO report said, Viagra sales plummeted one year ago after patent protection expired in that country. Men started buying lower-cost generic drugs instead, choosing from among 28 brands that burst onto the market as soon as the patent expired.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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