In the future, there is likely to be an increasing number of therapeutics derived from both single-ingredient and combination-ingredient herbal formulations. International alliances in the R&D and commercialization/modernization of TCM may well reap big dividends.

The Patent Question When companies consider venturing into China, their greatest concern typically involves intellectual property protection. Historically, most Chinese pharma companies lacked R&D capabilities and produced undifferentiated generic drugs, competing primarily on price. Before 1993, China did not grant drug patents. New drugs were quickly copied, often by several local companies, causing price erosion and loss of profits. For this reason, multinational pharma companies have hesitated to introduce innovative drugs for fear of losing control and not getting proper protection for valuable assets.

China's entry into the World Trade Organization in December 2001, however, coupled with the Chinese government's desire to attract foreign investment and its mandate to protect the country's own "high technology content" industries, has definitively improved IP protection and enforcement in the past few years.

Says Doug Olson, an IP lawyer with the firm of Paul, Hastings, Janofsky & Walker: "China is working hard to make patent protection in China the functional equivalent of Western patent systems. Although the Chinese court system does not yet appear to grant damages on the same scale as in the US, injunctions to stop infringement are routinely granted."

For example, several Chinese citizens were fined and sentenced to up to two years in prison for counterfeiting three GSK products—the antimalarial Halfan (halofantrine) and the antibiotics Ampiclox (ampicillin and cloxacillin) and Amoxil (amoxicillin). One violator who sold counterfeits of J&J's Band-Aid adhesive bandages was sentenced to six years in jail. The counterfeit products were destroyed.

There are still challenges ahead. In July, the Chinese Patent Re-examination Board decided that a patent for Pfizer's Viagra (sildenafil) was invalid, stating that Pfizer's application failed to accurately explain the use of the drug's key ingredients. The news sent shock waves through the industry, causing some critics to doubt the progress China has made in protecting IP. However, a closer examination reveals a more complex picture. In fact, long before the Chinese court intervention, Eli Lilly, Icos, and Bayer, whose drugs for erectile dysfunction compete with Viagra, successfully overturned Pfizer's patent in Europe, using the same strategy that was later used in China. (The UK court and the European Patent Office revoked the Viagra patent in 1999 and 2001, respectively.)

To Tony Chen, head of the China IP Practice Group at Paul Hastings and a returnee from the US, the Chinese court decision "demonstrates the evolution of the Chinese intellectual property dispute resolution system, which is quickly following its Western counterparts." He has observed an increasing number of IP disputes in China. In part this is because a growing number of Chinese companies are incorporating litigation into their strategy, but it is also because of the increasing number of Chinese patents. The China Patent Office received 105,318 applications for inventions in 2003—about the same number filed in the United States. Forty-six percent were foreign, representing a growth of more than 30 percent since 2002.