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Nov 15, 2006 (Vol. 26, No. 20)

China-Grown Pharma Products

Country Taking Steps to Improve its Production and Regulatory Standards

  • With a staggering 25% annual domestic biopharmaceutical sales revenue growth over the past four to five years, China is projected to become one of the world’s major biopharmaceutical markets within the next two decades. Much of this growth is attributed to Chinese government support for technology programs and active efforts of biopharmaceutical companies.

    In 1986 the Chinese government introduced the 863 Program, a national high-tech R&D program. Officials were determined to give biotech a top priority among other high technologies. As a result, although still in developing stages, China’s biopharmaceutical industry has undergone rapid growth.

    According to Advances in Biopharmaceutical Technology in China, September 2006, a newly released report by BioPlan Associates (www.bioplanassociates.com) and the Society for Industrial Microbiology, the total biopharmaceutical sales revenue in China reached RMB$30.31 billion (U.S.$3.8 billion) in 2005, a 30.21% growth over the previous year, accounting for 7.5% of the country’s total pharmaceutical sales. China’s biopharmaceutical industry is preparing for a rapid upswing in both domestic sales and production.

    The first Chinese biotech drug, recombinant interferon a-1b, was independently developed by Chinese scientists in 1989. This product, manufactured by Senzhen Kexing Biotec, initiated modern biopharmaceuticals in China. What followed are upwards of 30 additional biotech drugs launched to the market, and more than 150 biopharmaceuticals at clinical trial stages. The 863 Program is a success story in which funding of R&D has resulted in the investigation of more than 300 new biotech drugs.Today China is home to more than 400 biopharmaceutical companies of different ownerships; while most are small, the industry is emerging as a global outsourcing hub for life sciences.

  • Biopharmaceutical Overview

    Although most Chinese biopharmaceutical companies are manufacturing biogenerics (recombinant human interferons, interleukins, G-CSF, GM-CSF, EPO, insulin, growth hormone, and others), a few research-based leaders have developed and launched a dozen novel biopharmaceuticals with Chinese-owned independent intellectual property rights. Currently, China is able to produce 30–40 recombinant products, 41 vaccines, 18 blood products, and more than 300 diagnostics.

    But this situation where most products are based on copied intellectual property is changing as China repatriates research scientists, improves their IP situation, and brings in the talent needed to develop home-grown technologies and products. Because biopharmaceuticals save lives in the world’s most populous country, health administrators in China have had to balance the need to establish and enforce IP and trademark laws against the need to protect its citizens’ health and well-being.

    As the middle class in China grows, and it is now about the size of the population of the U.S., China’s ability to afford more costly biotherapeutics will also increase its political will and ability to enforce IP laws.

  • Major Challenges

    At its current stage, China’s biopharmaceutical industry remains small-scale. It shares less than 7% of the total global market. The annual revenue of a single global biopharmaceutical leader, e.g., Amgen (www.amgen.com), is three times that of China’s. Clearly, China has a long way to go to catch up with the world’s major biopharmaceutical players. In many ways, the gap between China’s biopharm industry and those in developed countries is widening.

    Challenges include:

    • Restricted Environment for Enterprise Innovation. Although the Chinese government has provided more direct support to the biopharmaceutical industry than ever before, a comprehensive, integrated environment that favors enterprise innovation has not emerged in terms of new drug approval, drug-price management, taxation policies, and biopharmaceutical contract manufacturing.

    • Limited Environment for Scientific Discovery. A stable education/research/production framework has formed, in which universities and public research institutions play a key role. However, Chinese biopharmaceutical companies are generally weak in drug innovation. Many new drugs in China were developed by universities and government-funded research institutes.

    • An Evolving IP System. China has joined the World Trade Organization, and dramatic changes have taken place in China’s IP system over the past five years. However, it is still not effective enough in protecting the interests of innovators. This has resulted in a chaotic, and sometimes vicious, competitive environment. Inefficiencies and duplication of production within this industry still exist.

    • Lack of a Mature Capital Market. The lack of a mature, effective capital market that provides strong financial support to the industry is a significant factor limiting the availability of development funds. While this is improving, the demand for funding and the need for efficient exit strategies for investors is creating pressure on this market.

    • Limited Staffing. The rapid growth of the industry is creating bottlenecks on both the scientific and management sides. The lack of high-level, experienced biotech staff with specialized skills in management and production is increasing off-shore recruiting for this expertise.

    • Scale of Industry. The majority of Chinese biopharmaceutical companies are still small-sized and capable of producing only one or two biogeneric products. To achieve efficiencies of production and increase likelihood of success, China realizes their biopipeline needs to be made more robust with new, home-grown technology platforms and research.

    •Excess Capacity. The industry is facing significant short-term production problems with overcapacity. After a nationwide GMP-compliance program in 2004, where changes in quality and regulatory requirements resulted in the inspection for certification of 5,000 existing pharmaceutical facilities in China, upgrades to capacity and other factors resulted in 45% excess production capacity after completion of these GMP certifications.

  • Necessary Steps

    For China’s biopharmaceutical industry to achieve its potential, political and health leaders recognize a number of steps must be taken. Although the gap in upstream R&D between China and developed countries is narrowing, the gap in downstream industrialization and product commercialization remains wide. According to the BioPlan study, China must implement a number of critical steps to ensure its success in the world biopharmaceutical industry, including:

    • Regulatory Reforms. Industry experts have called for more reforms on the healthcare insurance system, biopharmaceutical product approval, drug pricing policies, taxation policies, contract manufacturing policies, and the system for obtaining capital. These are critical to a favorable political environment for the industry.

    • Government Funding and VCs. Despite the fact that the Chinese government is continuing to pour money into its biotech and biopharmaceutical sectors, overall investment remains relatively limited, ranging from a few thousands to hundreds of thousands of RMB for each project. In the past, this was sufficient for companies to establish a strong foothold and grow.

    Today, however, some government-funded research projects have been cancelled mid-stream due to financial problems. China urgently needs to develop an effective VC market.

    Currently, most VCs at home or abroad remain cautious of the Chinese biopharmaceutical industry because the country has not established an effective VC exit system. Under sometimes difficult circumstances, many Chinese biopharmaceuticals are trying hard to raise funds through domestic and international stock markets.

    • IP protection. IP rights protection is the lifeline for a country’s biopharmaceutical industry. China has a short history of protecting IP rights here. Practical patent protection for pharmaceuticals was not available until January 1993.

    Following China’s entry into the WTO in 2001, the government has been taking more serious measures to address IP shortcomings in accordance with TRIPS (Trade-related Aspects of Intellectual Property Rights). Today, IP protection status has been improved significantly in China.

    However, the continuing existence of many biogenerics approved before 2001 still posts a challenge to many Western patent-holders. Under this circumstance, the only weapon to fight for their IP rights is international law. This past June, Pfizer won its patent protection lawsuit for Viagra in China, putting an end to a dozen Chinese companies producing the product as a generic.

    • Innovation. Most Chinese biopharmaceutical companies realize the vital importance of establishing an in-house drug innovation program. As IP laws evolve that inhibit copying of foreign products, companies have listed innovation at the top of their agendas. Approvals of biogenerics have been restricted by the Chinese State Food and Drug Administration (SFDA) since 2005.

    For the majority of Chinese biopharmaceutical companies with excess production capacity who have been producing biogenerics for years, innovation will be the only way they will survive harsh competition. For decades, universities and public research institutes have taken the core position in biopharmaceutical innovation. The government is beginning to encourage and support biopharmaceutical enterprises politically and financially and let them play a key role in innovation.

    • Biotech Talent. China has a biotech talent pool with upwards of 20,000 research scientists. There is a growing number of “Hai Gui,” meaning Western-trained Chinese returnees who have stayed overseas for many years and acquired academic and commercial experience. These skilled workers are returning to China and taking important positions.

    As a result, China is gradually catching up with the West. Today, some Chinese biopharmaceuticals founded by Hai Gui are recognizing the value of these “soft skill” assets. The industry should develop a supportive environment for them to use their talent.

    • Outsourcing. The outsourcing industry is fueling the expansion of China’s biopharmaceutical segment. Chinese companies will benefit from outsourcing opportunities by tapping into some of the world’s advanced biotechnologies.

    However, a number of major biological products such as vaccines and blood products are prohibited from contract manufacturing by the government. This may slow down the development of biopharmaceutical production outsourcing in China. The government should further relax restrictions on such outsourcing and give Chinese companies more freedom to perform on international stage.

    China’s biopharmaceutical industry is beginning to exhibit the same strong growth that its other technology industries have achieved. However, it will need more than solid manufacturing skills. The complexity and regulated nature of this industry require a strategic integration of many components.

    China’s biopharmaceutical industry should establish a solid development pattern taking into account the key factors of talent, innovation, management, IP protection, and capital. The ultimate goal for Chinese biopharmaceuticals is to enter the international markets.

    As Chinese biopharmaceutical companies become a major force for innovation, and once they have managed their current industrial and regulatory bottlenecks, we believe China will become one of world’s major biopharmaceutical players over the next two decades.



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