Both China and India are major producers of generic drugs. After years of development, China ranks first in the world in formulation production capacity, but its consumption structure is primarily domestic, with a very small share of the international market. According to data from the China Chamber of Commerce for Import and Export of Medicines and Health Products (CCCMHPIE), China's total formulation export value in 2020 was US$4.93 billion, of which exports to the United States amounted to US$680 million. India is the world's largest exporter of generic drugs, with a clear international competitive advantage. Data from the Pharmaceuticals Export Promotion Council of India shows that in fiscal year 2020-2021, India's total generic drug export value was US$18.85 billion, with exports to the United States accounting for about 30% of its total exports.

The United States is the world's largest generic drug market, and it is also the largest export destination for formulations from both China and India. Regarding the US market, the internationalization paths of Chinese and Indian generic drug companies differ in terms of industry development logic, first-to-file generics, and patent challenges.

Actively Expanding into the US Market

In the 1970s, the Indian government successively introduced a series of policies such as "abolishing patents on pharmaceuticals and chemicals," "restricting the shareholding of foreign-funded enterprises," and "raising tariffs to limit imports." These policies aimed to restrict the development of multinational pharmaceutical companies in India while promoting the rapid growth of domestic pharmaceutical companies. India's policy on strong generic drug production, in particular, directly propelled the takeoff of its generic pharmaceutical industry. With the surge in the number of generic drug companies, competition in the Indian pharmaceutical market intensified. Coupled with strict government price controls on drugs, India became one of the countries with the lowest drug prices globally in the 1980s. To survive and develop, some Indian companies actively planned to expand overseas. Coincidentally, the United States enacted the Drug Price Competition and Patent Term Restoration Act (also known as the Hatch-Waxman Act) in 1984, ushering in a golden era for generic drug development in the US. In the same year, India's Cipla began to explore the US market. Indian pharmaceutical companies place great emphasis on resource integration. As more and more Indian pharmaceutical companies joined forces to enter the US market and capitalized on the policy dividends of the rapid growth of the US generic drug market, India's generic drug industry gained strong momentum.

After the reform and opening up, China's pharmaceutical industry developed rapidly. In the early stages, the strategy of "exchanging market for technology" led to rapid growth for foreign-funded pharmaceutical companies in China. With the rapid economic growth and the gradual expansion of healthcare expenditures, China's generic drug industry entered a phase of rapid, low-level, repetitive, and extensive growth. The practice of "using drug sales to support hospital operations" led to inflated drug prices and fostered a "marketing first" mentality within the industry. The quality of domestic generic drugs was inconsistent, but companies could still profit in the domestic market through flexible sales strategies. At that time, domestic pharmaceutical companies lacked the impetus to "go global." Between 2000 and 2015, some leading pharmaceutical companies gradually began to explore overseas markets. After July 2015, national drug regulatory authorities introduced a series of policies to encourage new drug development and strengthen the alignment of China's drug regulatory framework with international standards, creating more possibilities for domestic pharmaceutical companies to expand into the US market. Compared with India, Chinese pharmaceutical companies have long relied on the dividends of the domestic market, entered the US market relatively late, and more opportunities await further exploration.

Accelerating Formulation Approvals

Indian pharmaceutical companies are well-versed in US regulatory requirements and market rules, particularly excelling in documentation and document management, sometimes even surpassing local US companies. Consequently, their number of generic drug Abbreviated New Drug Applications (ANDA) approved in the US far exceeds that of China. From 2010 to 2019, ANDA approvals for Indian pharmaceutical companies accounted for over 35% of all approvals by the US Food and Drug Administration (FDA). Sun Pharma, one Indian company, has alone received over 400 ANDA approvals. Indian pharmaceutical companies have established a rich product pipeline in the US, and generic drug sales in the US market have become a primary source of revenue for them.

Chinese companies entered the market later. In 2007, Huahai Pharmaceutical's nevirapine became the first Chinese formulation to receive FDA approval, officially marking the start of Chinese pharmaceutical companies' journey to expand formulation sales into the US market. According to CCCMHPIE data, from 2006 to 2010, Chinese companies only successfully registered 6 ANDAs in the US; from 2010 to 2014, the average number of ANDAs approved annually for Chinese formulations in the US was only around 20. However, this number began to grow rapidly starting in 2015. In 2020, Chinese pharmaceutical companies received over 80 ANDA approvals in the US. Despite the rapid increase in numbers, the approved dosage forms remain relatively limited, primarily oral formulations and injections. Currently, the Chinese pharmaceutical company with the most ANDA approvals in the US is Huahai Pharmaceutical, which had accumulated 74 ANDA approvals as of April 6, 2022.

Currently, the FDA has significantly increased the application fees for generic drugs. Additionally, as competition in the US generic drug market intensifies and generic drug prices decline, Indian companies are also shifting towards submitting fewer, but more sophisticated, generic drug applications in the US. Chinese companies must learn how to increase the variety of generic drugs approved in the US at the lowest possible cost.

First-to-File Generics as a Key Direction

As the market for standard generic drugs in the US becomes a "red ocean," many companies are turning their attention to first-to-file generics. The FDA generally grants priority review to first-to-file generic drug applications. First-to-file generics can be priced at around 70% of the brand-name drug's price, and those that successfully challenge patents also receive a 180-day market exclusivity period. In 2001, Dr. Reddy's Laboratories of India achieved the first first-to-file generic drug for an Indian company in the US with its 40mg dose of fluoxetine tablets. Leveraging their extensive experience in generic drug development and familiarity with US regulations, Indian pharmaceutical companies have repeatedly and successfully challenged new drug patents and competed for first-to-file generics in the US. Taking Dr. Reddy's as an example, by the end of March 2018, among its 107 ANDA projects under review, 63 involved patent challenges, and 30 were first-to-file submissions.

In 2014, China's Sunshine Lake Pharma's prasugrel became the first first-to-file generic drug approved for a Chinese company in the US. In 2017, Huahai Pharmaceutical's paroxetine capsules became the first generic drug from a Chinese company to successfully challenge a patent under Paragraph IV (PIV) in the US. According to CCCMHPIE statistics, in 2019, a total of 46 companies obtained 95 first-to-file generic drug approvals in the US. Among them, Indian pharmaceutical companies obtained over 30, accounting for nearly one-third of the total; only one Chinese company, Xuantai Pharma, received a first-to-file approval for posaconazole enteric-coated tablets.

"In the world of martial arts, speed is key." Achieving first-to-file status is essential to gaining substantial returns in the US market. As the generic drug consistency evaluation progresses, the capability of Chinese companies to develop generic drugs according to the International Council for Harmonisation's uniform technical standards and global evaluation systems is continuously strengthening. It is believed that in the future, developing high-barrier first-to-file generics will also become a primary direction for Chinese pharmaceutical companies' development in the US market.

Engaging in International Mergers, Acquisitions, and Capital Operations

The reason Indian generic drug companies have grown into international giants is closely tied to their active mergers and acquisitions (M&A). Through continuous M&A and restructuring, Indian pharmaceutical companies have increased their number of ANDA approvals, rapidly expanded their generic drug scale, built rich product pipelines, and gradually established strong market barriers. Taking Sun Pharma as an example, starting with its first acquisition of a multinational pharmaceutical company's API manufacturing facility (Knoll Pharma) in 1996, it has since acquired 16 companies, including 5 M&A deals targeting the US market. Sun Pharma has now become the largest Indian generic drug company in the US.

Chinese generic drug companies have been relatively conservative in overseas M&A. Starting from 2016, Chinese pharmaceutical companies began implementing overseas acquisitions on a larger scale. In 2016, Huahai Pharmaceutical acquired the Charlotte facility in the US; the same year, Humanwell Healthcare acquired Epic Pharma for US$529 million, gaining multiple ANDA approvals through this acquisition. In 2017, Fosun Pharma successfully acquired the Indian pharmaceutical company Gland Pharma for US$1.091 billion. It is reported that by 2020, Gland Pharma, controlled by Fosun Pharma, along with its partners, held over 260 ANDAs in the US.

International M&A serves as an accelerator for corporate internationalization and is a significant factor contributing to the gap between Indian and Chinese companies in the US market.

Building a Localized Industrial Chain Ecosystem

For generic drugs to ultimately enter the US market and become profitable, they involve multiple aspects, including R&D, international registration, certification, market access, and marketing systems. Indian pharmaceutical companies are familiar with FDA rules, have fast R&D capabilities and strong application skills, have access to many clinical institutions meeting FDA requirements, and benefit from relatively lower labor and hospital bed costs. Having operated in the US market for many years, Indian companies have a thorough understanding of US generic drug sales practices, and some major distributors even have Indian-origin managers. Indian companies have established a comprehensive industrial ecosystem covering R&D, manufacturing, and sales in the US, which paves the way for their products from development to commercialization. Dr. Reddy's, for example, has been rooted in the US for many years, forming a complete industry chain and a relatively robust sales system, allowing its products to be quickly launched upon approval in the US.

Internationalization is not an overnight achievement. Chinese pharmaceutical companies still have a long way to go from obtaining ANDA approval to realizing commercial profits from their products. Choosing the appropriate sales model for approved products and quickly resolving various regulatory issues after launch are challenges that Chinese pharmaceutical companies, which have not yet established a sales system in the US market, must tackle step by step.