China: A Change in Attitude

Innovation forces upgrades in regulatory, quality, and standards to ensure the country is competing on a global level

The pharmaceutical industry in China is definitely not a new thing, but for the past three to five years, there’s a definite twist on the old thing. One that is more akin to western countries in regard to innovative growth, regulatory, and adherence to standards. There are a number of separate events that, taken together, have inspired this pivot and new attitude.

Last year, management consulting firm L.E.K. Consulting issued a report called “Heading East: Biopharma International Expansion to China and Asia.” According to the report, in 2017, the top four countries for global pharma spending were the US at $467 billion; China, $123 billion; Japan, $85 billion; and Germany, $45 billion. L.E.K. also projected those numbers to grow, respectively, by 2022 to $600 billion; $160 billion; $87 billion; and $56 billion. 

But those are the numbers. Here are the reasons. 

Innovation

Helen Chen, Greater China managing partner and head of China and Asia life sciences for L.E.K., told Pharm Exec that China’s desire to increase innovation is not solely in the pharma purview. It resembles Germany’s Industrial 4.0 framework, with a focus on robotics, AI, and medical devices as well. “As an industrial policy, the country is trying to upgrade itself to have higher value,” says Chen. She believes the innovative leaders in industry are the ones lobbying and facilitating this change in China similar to how Europe and the US does things.

That sentiment is evident from the experience and ideas of one Chinese biotech CEO and chief scientific officer, Xiaoqiang Yan of Generon Biomed, a biotech subsidiary of Yifan. Yan received his PhD in molecular and cell biology at the University of Toronto. He then worked for Amgen as a research scientist from 1993 to 2002, before he returned to China and co-founded Generon in 2004. During his time in the US, Yan observed that the big biotechs-Amgen, Genentech, and Biogen-built their own manufacturing plants. “In my experience, they all did that because of the complexity of the product they were manufacturing and they needed that process control,” he says. “Therefore, they developed their own manufacturing science, because they understand the

biology and the biophysical properties of their product.” 

Yan, too, believes that complex therapies, including his company’s own CD3 bispecific antibody platform for immunoncology, targeting and its recombinant human cytokine dimer platform for receptor activation, require improved and robust manufacturing processes as keys to success. Therefore, Generon Biomed is building its own cGMP biological manufacturing plant, which will be FDA/EMA/NMPA-compliant. He told Pharm Exec, “China and the US used to have huge gaps in GMP (good manufacturing practice). We want to have that FDA approval, because we want to guarantee the high quality of the product and the standards. Those are critical factors for patients as well.”

Manufacturing

There has been a long history of quality issues in China that get media attention and seem to set public perception back around drug and biologics in the country. As recently as mid-January, the government is investigating how 145 expired polio vaccine vials were given to children. While not necessarily a manufacturing issue, it follows the July 2018 injection of Chinese children with faulty DTaP vaccine, resulting in a $1.3 billion fine against the manufacturer, Changchun Changsheng Bio-Technology Co., Ltd. 

Largely, quality issues can be traced to the country’s history of manufacturing generic drugs, a landscape that featured 6,000 manufacturers in 2000. According to Chen, China has gone through multiple stages of upgrades to its GMP requirements, and with each stage requiring a higher level of rigor, manufacturers, mostly smaller ones, have closed shop rather than spend the money to upgrade their processes. That weeding out has brought the number of generic manufacturers to 4,000. 

The last regulatory round instituted a bioequivalence requirement. Chen says, “Generics used to not have a bioequivalent requirement to the originator. The government instituted a rolling requirement for the first 289 essential drugs in the oral class, which needed to prove bioequivalence to the originator in order to stay in the system.” As part of the process, the government will discontinue all other generic brands not meeting bioequivalence once three products per molecule have received GQCE, or generic quality consistency evaluation. 

Again, this process is applying higher rigor and stringency to generic products in China, but, clearly, following upgraded GMP impacts the rest of drug manufacturing. It speaks to the desire to have quality drugs available for patients in the country and how companies like Generon see that high-quality manufacturing can inspire consumer trust for a drug or biologic.

Venture capital and funding

A new plan unveiled in December 2017 aimed to bring more IPOs to the Hong Kong Stock Exchange. Under the new rules, biotech companies in particular need not have a revenue requirement, or a revenue track record. However, they must have a market valuation of at least $1.5 billion (HK) at the time of listing, one “sophisticated” pre-IPO investor, and a product that has passed a Phase I clinical trial for safety and has regulatory approval to begin the efficacy portion in Phase II. This clearly is a huge boon to biotech in China, which the government has said will grow to 4% of the country’s GDP by 2020. Meanwhile, the Trump administration’s changes to the Committee on Foreign Investment in the United States (CFIUS) affect investing in China biotech, as well as China investing in US-based biotechs. 

Regulatory

The regulatory environment in China was not always as conducive to innovation and China’s drug and medical device regulatory agency has evolved since 2008, first from the SFDA to the CFDA, and then, since 2018, the NMPA, or National Medical Products Administration. In each instance with the CFDA and NMPA, the goal has been for the Chinese regulatory process to mimic and work in harmonization with the other large global agencies. 

Specifically, since 2017, the NMPA has made some notable changes that have impacted drug development in China. For one, the Clinical Trial Application formerly required that three batches of drug be available for testing, which is “very costly for a novel drug, and not entirely realistic,” says Chen. That requirement has been removed.

The next change is allowing the submission of clinical trial data conducted globally, not just on Chinese patients. In July, the NMPA published the “Technical Guidelines for Acceptance of Overseas Drug Clinical Trial Data,” outlining its new direction. “These are clear examples of the regulatory agency trying to align its systems with other markets,” says Chen. “It makes it easier for ex-China companies to do business in the country, but it also helps Chinese companies to adapt their processes and be more aligned with other markets when doing submissions.”

Another change is the faster approval pathways, similar to the FDA’s priority review, breakthrough therapy, accelerated approval, and fast track. According to Chen, an expedited review process has been in existence since 2009; however, it became more actively defined and publicized in 2016.

Healthcare

While the discussed factors focus more around innovation and reasons for an expanding pharmaceutical market, the facts around China’s healthcare system have clear differences that pharma and biotech companies will need to understand. As noted in L.E.K.’s report, there are a number of ways to tackle the Chinese pharma market. One is partnering with a company in China because of its cultural fit, market access understanding, and experience in the region. 

Here’s a well-known fact about China-it has a lot of people, 1.4 billion. For comparison sake, the US has a population of 325.7 million. 

But the recent past has seen the number of people living China’s urban areas rising steadily; as of 2015, this segment represented 55.8% of the nation’s population, vs. 44.2% in rural. China is also experiencing an  increasing wage gap, with a growing income disparity that resembles that of the US. China has a 46.5 Gini coefficient, which is a global benchmark for the measure of income disparity, while the US has a 47 Gini coefficient. The income disparity question is something that China, as well as the US, will need to address at some point; but what it does speak to for biopharma purposes is a growing middle-class with disposable income in China. The nation’s healthcare is largely fee-for-service, a consideration for product launch, and medication maintenance. 

In 2017, healthcare as proportion of GDP in China was only 6.36%, compared to 18% in the US, the highest rate globally. Japan’s and Germany’s are 11% and 11.2%, respectively. Many believe that more investment in healthcare is needed, which would be costly, but it doesn’t need to equal the levels of the US. 

While healthcare insurance is a public system with mix of private (employer-based) as well as public contributions, as noted, services and drugs are often paid out-of-pocket. The government does procure essential drugs and most are dispensed through hospitals. A new pilot procurement system has been recently initiated in China, with the government reaching out to the manufacturers of 31 essential drugs asking for their best price

Bill Trombetta

for a guaranteed number of sales. According to industry watcher Dr. Bill Trombetta, professor of healthcare strategy and marketing at St. Joseph’s University Haub School of Business, who has taken graduate students to China to visit with top pharma, CROs, hospitals, and wholesalers for first-hand experience, some manufacturers cut their prices upwards of 90%, though the average was closer to 46%. To Trombetta, the math makes sense. “If there are 140 million people in China with diabetes, which is half of the US population, you cut the drug’s price by 70% but still reach all of those people, that is still a significant amount of money,” he says. However, Chen believes the pilot bears watching, as there has been some backpedaling by the Chinese on how many patients they are guaranteeing access to on the contracts. 

Another difference is that the “trusted” physician relationship that most western countries recognize is not a feature of China. In fact, that relationship ranges from distrustful to downright adversarial. In China, as of 2014, there were 1.7 doctors per 1,000 people. As a comparison, the US has 2.6 doctors per 1,000 people and Germany 3.7 per 1,000. “It is very difficult to see a doctor in China,” says Trombetta. And when patients do, they don’t necessarily trust physicians or think highly of them. Additionally, Trombetta noted the incidence of violence against healthcare professionals is high enough that there is a specific term describing it, “Yi Nao,” which translates to healthcare disturbance (see here and here). 

The causes for this violence have been reported to be poor investment in the health system and in training and paying doctors. Those can lead to medical errors, corruption, and poor communication between HCPs and patients. Other factors include negative media reports, poor public understanding of medicine, unrealistic patient expectations about treatments, and the high out-of-pocket healthcare expenses for families.

It is this lack of patient understanding around medicine and innovative treatments that concerns Yan. “I see the next 10 years as a gold rush in China in regard to innovative medicine,” he says. “But I also see that people don’t understand how long it takes to develop a drug, and how much the costs can be, even for biosimilars. Where will the funding come from? I do think about that a lot.” 

The promise

IP issues in China are of dwindling concern, again addressed by more robust legal practices. As these videos from our senior editor attending the JPM Healthcare Conference in January show, most executives are not alarmed over IP anymore. It’s not an overnight phenomenon that innovation, regulatory, IP, and funding rules changed in China, and many initiatives have been ongoing and are now gaining speed from these new market forces. 

One trend not going away is less tangible, but clearly a force. As Yan observes, “There are many people like me, who left the country to study abroad to learn and work for 10 or 20 years and they come back to China with the skills, knowledge, and the entrepreneurial spirit.” That is the promise for the future of pharma in China. 

Lisa Henderson is Pharm Exec’s Editor-in-Chief. She can be reached at lisa.henderson@ubm.com