Chinese pharma-biotech dragon rears its head

11 Sep Chinese pharma-biotech dragon rears its head

– I am on the eve of departing for Osaka, Japan, for the Bio Japan 2006 conference as part of a small Illinois mission. I have written a number of times over the years about both the Japanese pharma and biotech industries, but I haven’t been back to Japan for a few years and I’m looking forward to getting up to speed on the development of the biotech industry there.
Just a reminder: Chicago and Osaka are sister cities and my last visit was part of the festivities to celebrate the 30th anniversary of that relationship. This article will NOT cover Japan (you’ll have to wait until the next one), but I did think it appropriate to talk about the development of a nearby Asian neighbor of Japan: China.
In my last article, I reviewed author Tom Friedman’s world flattening vision and the impact on biotechnology around the world. Let’s look specifically at what is happening in China that might have an impact on us in the near future.
According to an article in the July/August edition of the magazine Pharmaceutical Manufacturing, the Chinese pharmaceutical market had revenues of $54.6 billion (compare this to over $240 billion in the U.S., or a little less than 25 percent of the U.S. pharma market).
A couple of key trends are positively affecting China’s role in the world pharma market:
• Entry into the World Trade Organization in 2001.
• The development of a regulatory system like the U.S. Food and Drug Administration, called the State Drug Administration (SDA).
• The return to China of Chinese nationals with expertise and experience in Western biopharmaceutical companies.
• Chinese government’s promise to expand Intellectual Property (IP) protection.
The relatively new Chinese SDA (the Chinese FDA) has moved forward aggressively to implement common drug development parameters existing in countries such as the U.S. and Europe; in September 2003, they put into place Good Clinical Practice (GCP) standards. This measure alone has significant impact on the performance of clinical trials in China in a manner consistent with world-class standards.
The impact of GCP means not only the potential usability of Chinese clinical data for regulatory submissions in other countries, but the potential growth of the Contract Research Organization (CRO) industry in China. Parallel to this is the implementation of Good Laboratory Practices (GLP), which has a significant impact on pre-clinical research and development.
Another world standard of drug development called Good Manufacturing Practices (GMP) also has been implemented in China, which will insure the growth of the Chinese Contract Manufacturing Organization (CMO) industry.
As I have commented in prior articles, the growth of both the CRO and CMO industries in India has been phenomenal given the significant cost advantage, speed of completing key activities, and highly competent Indian scientific community, which produces excellent chemists and engineers. But China is not too far behind India: for example, the Chinese CMO industry produced revenues of $7.5 billion in 2004, according to Pharmaceutical Manufacturing.
There are more than 300 CROs operating in China (including international ones), even though annual revenue is still small: about $63 million in 2004. This level represents a tiny sliver of the $16.3 billion global CRO market (of which the U.S. and Europe represent about 88 percent).
China’s move to upgrade its pharmaceutical manufacturing infrastructure is paying dividends. Ten Chinese finished drug manufacturers have received GMP certification from the U.S. FDA, and an additional 259 products associated with 130 Chinese manufacturers also have obtained FDA GMP certification.
According to a Sept. 1 article of Genetic Engineering News on “Chinese Biogenerics,” 95 percent of Chinese pharmaceutical products are generic. As patents now are being implemented, however, the growth of the proprietary and innovative drugs is growing rapidly.
Before the 1990s, Chinese pharmaceutical companies were unable to develop innovative therapies as a result of both financial and technical obstacles. China’s patent law was first implemented in 1984, but initially excluded drugs. This allowed Chinese pharmaceutical companies to reproduce foreign drugs that had not previously been manufactured or marketed in China.
Part of this action by the Chinese government is due to the reality of the income level of most Chinese. China’s Gross Domestic Product (GDP) was $2.28 trillion in 2005; however, due its large population, the GDP per capita is only $1,700, ranking China 100^th in the world.
As a result, Chinese per capita drug spending is less than $20 annually (compared to about $700 per capita in the U.S.). As 80 percent of Chinese (or more than 1 billion persons) live in rural areas, with even lower income per capita, drug expense is even lower with this population – less than $5 per person annually.
Even worse, according to the Genetic Engineering News article, almost 66 percent of Chinese citizens (or more than 858 million people) are not covered by any medical insurance!
Because of the above, there is consumer pressure to lower the price of drugs further. In September 2005, the Chinese National Development and Reform Commission announced a reduction of 40 percent of the retail price charged for 22 classes of drugs, including antibiotics and even some biotech drugs such as interferons.
Nevertheless, with the entry of China into the WTO, China has moved to further shore up its deficiencies in patent law beginning with the September 2002 “Regulations for Implementation of the Drug Administration Law,” which modified the definition of a new drug to that of a drug that never been marketed or sold previously in China) Furthermore, China’s patent law was amended on December 12, 2002 to harmonize China’s patent system with other WTO countries.
China will have a major role to play in the development of the world biogeneric industry, given its very significant cost advantage to Western manufacturers. It is estimated that Chinese biogeneric manufacturers already are marketing 361 recombinant biogenerics and 25 biotech drugs. China is currently producing eight of the world’s top 10 genetically engineered drugs or vaccines, according to Genetic Engineering news. The revenue from biopharmaceutical production in China reached levels of $4.2 billion in 2005, up from $860 million in 2000, and it’s growing at 20 to 30 percent per year.
China’s export of biopharmaceuticals still is in its infancy, but also growing quickly, with 2005 exports of $478 million which grew 51 percent over the prior year. Biopharmaceutical sales in China are still less than 10 percent of the total Chinese pharmaceutical market, but with sales of almost $4 billion, they are still respectable.
Some of the major Chinese biogeneric manufacturers are:
• China National Biotec Corp. (CBNC).
• Beijing Tiantan Biological Products.
• Chengdu Rongsheng Pharmaceuticals.
• Shanghai Institute of Biological Products.
• Changchun Institute of Biological Products.
• Shenyang Sunshine Pharma.
• Anhui Anke Biotechnology.
• Beijing Tri-Prime Genetic Engineering.
• Changchun ChangSheng Gene.
• Guangxi Beisheng Pharmaceuticals.
• Shenzhen Kexing Biotech.
• Sinovac Biotech.
• Tianjin Hualida Biotechnology.
• Xiamen Amoytop Biotech.
• Beijing SL Pharmaceutical.
Hangzhou Jiuyuan Gene Engineering.
• Hualan Biological Engineering.
• NCPC Genetech Biotechnology.
Source: “Chinese Biogenerics,” Genetic Engineering News, Sept. 1, 2006.
Chinese biogeneric companies have focused their efforts to date on such drugs as interferon, interleukins, GM-CMF, Erythropoetin (EPO), Hepatitis B vaccine, and recombinant insulin, all of which are big drugs in the Western world.
As the FDA and European EMEA sort through all of the regulatory hurdles surrounding approval of biogenerics and the barriers to entry into these two key markets drops, there very definitely will be an onslaught of Chinese biogenerics following the wave of Indian biogenerics.
The major difference is that the Indian Pharmaceutical industry already has started to internationalize (note I have not used the word globalize), setting up both direct operations and acquiring companies in both the U.S. and Europe. China’s industry is still in the export stage, but when it does internationalize, the dual threat of India and China will be difficult to manage.
It is incumbent on U.S., European and Japanese Pharma and biotech companies to make significant investments in both India and China now to:
• Take advantage of the substantial cost advantage and talented labor pool.
• Understand the development of the local pharma/biotech industry as key local companies begin their internationalization process.
• Create markets in these countries for their own products.
In my next article, I will bring you back direct news about the Japanese pharma and biotech market. See you soon!
Recent articles by Michael Rosen
• Michael Rosen: The flattening world and its impact on U.S. biotech
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• Michael Rosen: The world of in-vitro diagnostics is another Midwest success story