New Roads to China

The nation’s rapidly changing regulatory climate is creating a new landscape for R&D and manufacturing service providers

One marker of the pace of change currently under way in China was highlighted at the FT’s annual Pharma and Biotech Conference in London in November. To the polling question, “When will China be a significant influencer of innovation?” half the audience answered 2025. This prediction might be surprising to those who have taken their eye off the ball, but the country’s intensive commitment in the last few years to a program of regulatory advancement is swiftly changing the Chinese pharma and healthcare market. So much so, one of the FT conference speakers, Christian Hogg, CEO of Hong Kong-headquartered biopharma company Chi-Med, proclaimed that 2025 is a “conservative” estimate for China’s breakthrough as the world’s pharma powerhouse. 

And with a brace of regulatory changes that include deregulating the conduct of clinical studies; accelerating the drug and device approval process; promoting drug innovation and the growth of generics; strengthening the administration and supervision throughout product lifecycles; and enhancing the technical review infrastructure, China looks open for business in a way that did not seem feasible a few years ago. Back then,  international pharma companies were withdrawing from the country, having been obstructed by protectionist policies and a sketchy IP system.

The scale of unmet need in China now “trumps protectionism,” Hogg told the FT audience. He added: “I’ve seen protectionism melt away over the last 10 years. The country has listened to the multinational companies out there [and] the regulatory advances have been amazing. It isn’t perfect yet, but it’s a lot better.” 

Navigating the new terrain

The changes in China have resulted in “an extremely dynamic landscape for companies looking to enter the market,” says Dr. Chang Lee, vice president of consulting for Parexel in China. In October, the CRO announced the launch of a new China Advisory Service to help global biopharma companies “navigate all aspects of the country’s drug development process.” Lee told Pharm Exec: “Four years ago, clinical trial approval from the Chinese FDA (now the National Medicinal Products Administration [NMPA]), took about 10 months. Now, by law, it is just 60 working days. Second, there’s a huge market from the Chinese reforming of the drug formulary coverage. It is now much easier for insurance companies to cover a drug, to get drug approval, and to get a drug on the national formulary. This has attracted pharma companies back to China.” 

Roel de Nobel, vice president, global operations, clinical supply services at Catalent Pharma Solutions-which announced its plans in November to invest $2.5 million in a new, second clinical supply facility in Shanghai-told Pharm Exec that, as a result of NMPA significantly shortening the lead time associated with granting a new clinical trial approval, “we have seen a significantly increased interest from multinational pharma in bringing their drug development activities into China.” He adds: “We expect this trend to continue, given China’s large and easily accessible patient pool, and supportive healthcare infrastructure.”

As Lee noted, however, “the ability to quickly understand and adapt is critical to succeeding in this rapidly changing environment.” While the reforms have made the regulatory environment in China more accessible to pharma companies, barriers to entry still remain. These include government-mandated price controls in public medical insurance programs, complex price negotiation processes at national and province levels, complex distribution channels, infrequently updated formularies, and an absence of GMP-compliant manufacturing testing sites and GCP-compliant clinical sites.

“In just a short time, China has grown from being an emerging market for companies looking to develop drugs to the second-largest biopharmaceutical market in the world,” says Paul Bridges, Parexel’s corporate vice president and worldwide head of consulting. “While many are aware of the opportunity that exists in the market, the challenges and hurdles to entry are generally not well understood.”

For example, Bridges told Pharm Exec, “there are so many changes to regulations that the implementation of those changes will take time. It is too early to know how the newly formed NMPA will approve new drugs for national insurance coverage consistently. Also, there are limited local key opinion leaders to advise on China medical practice patterns and evaluate unmet medical needs.” As more R&D companies look to penetrate this market, he says, the need for advisory services will continue to grow. 

CRO plus 

A 2017 Research and Markets report predicted that the CRO industry in China-driven by the favorable policies, more spending on R&D, and an increase in the number of new drugs approved-will reach an estimated RMB116.5 billion ($17.1 billion) by 2021, with Chinese pharma R&D spending of up to $29.2 billion driving the development of the CRO industry from supply side. Currently, the top 10 global CRO companies, including Parexel, IQVIA, Covance, Syneos Health, and Charles River, hold a combined 45% market share in China, but the pace of regulatory change in the country has intensified demand for talent in this area. Lee told BioSpectrum Asiain October that “the biggest challenge for CROs in China currently is the lack of an adequate clinical research infrastructure, specifically; limited research sites; lack of qualified principal investigators and research staff; and inefficient institutional review board (IRB)/ethics committee (EC) processes, among other challenges.” 

In December, Parexel struck a new collaboration with Eli Lilly to launch a clinical research learning and development program in China to “bring high-value training opportunities to China’s clinical trial sites and investigators, enhancing the execution of local clinical trials.”

There is growing competition for western companies, however, from the domestic CRO space, with companies such as WuXi AppTec, Pharmaron, Shanghai Medicilon, Hangzhou Tigermed Consulting, Joinn Laboratories, and Quantum Hi-Tech Biological reportedly pushing the development of the clinical outsourcing industry in China. In 2017, Quantum Hi-Tech acquired ChemPartner, one of China’s biggest chemistry service providers, and  state-owned Xinjiang Baihuacun entered the R&D market with a $270 million investment in Huawei Medical. 

As China continues to attract overseas pharmas to expand their territories and capabilities in new drug R&D, “the leading Chinese CROs will be at forefront… gradually becoming their priority suppliers and important strategic partners,” wrote Jin Zhang in an October 2017 entry on her thefierceconsultant.com blog. While the preclinical CRO market is relatively small, things are changing, she added. “In light of the Chinese government’s support of drug innovation and the convergence between China and global medication standards, an increasing number of domestic pharma companies are slated to devote more resources and apply more capital to innovative medication development.” 

Lee sees the traditional, clinical trial-focused CRO model developing into a “CRO plus” model in China. “For example, this might include CRO plus marketing data; CRO plus clinical lab; CRO plus contract manufacturing organization (CMO); CRO plus technology (e.g., AI, big data).” 

On this front, the Shanghai-based giant WuXi AppTec (which accounted for 9.5% of the Chinese CRO market in 2016) has embarked on a program of national (and international) expansion, which, in 2017, saw its drug development business services merge with its active pharmaceutical ingredient (API) production business, STA Pharmaceutical. The firm announced that it would be building a new site in Changzhou, China, featuring nine large manufacturing facilities. According to published reports, by the middle of last year, WuXi  had reached a third of this target, with three commercial-scale facilities completed, making the company a sizable CMO as well.

Opening up to CMOs and CDMOs

While, for many people, “outsourcing to China means WuXi” (as PharmaBlock Sciences CEO Haijun Dong was quoted as saying in Chemical & Engineering News last year), the need for contract manufacturing services in China is growing, with more biosimilars and innovative drugs entering the clinical pipeline but with most early-stage biologics developers in China lacking manufacturing facilities. 

Vicky Qing Xia and Leo Cai Yang of BioPlan Associates wrote in 2018 in Contract Pharma that, “China is demonstrating clear investment interest in participating in global markets for both innovative biologics and biosimilars produced at GMP quality levels.” They noted that before 2016, pharma contract manufacturing for domestic drugs “essentially did not exist in China,” because of a regulatory framework that precluded third-party/CMO manufacturing for either clinical trials or commercial production. In 2016, however, China established the pilot Market Authorization Holder (MAH) program, under which holders of a Chinese FDA biologics approval number had the option to manufacture the drugs or use a CMO. “It is widely expected that the regulatory hurdles for contract manufacturing of drugs in China will shortly be removed,” Qing Xia and Cai Yang added. (It is now believed that the MAH will not become law before 2020.)

BioPlan Associates’ 14th Annual Report and Survey of Biopharmaceutical Manufacturing, which asked global respondents to evaluate their facility’s current plans for future international capacity expansion, revealed in April 2017 that China had for the first time beaten Germany and Singapore to fourth place as a potential outsourcing destination (the US remained the top destination). Qing Xia and Cai Yang concluded in Contract Pharma that an expected rise in quality standards for manufacturing in China is “also likely to bring good news to vendors of new bioprocessing technologies, products, and services.” 

In 2017, Boehringer Ingelheim was the first multinational company in China to set up a CMO project in line with global standards. With an eye on increased future demand, its China biopharmaceuticals site in Pudong, Shanghai, reportedly has a capacity of four 2000 L single-use bioreactors. Boehringer Ingelheim has been active in lobbying for MAH reform, and in January 2018, the company announced that BeiGene’s solid tumor treatment, tislelizumab, would be the first monoclonal antibody (mAb) to be produced at its Shanghai site, and the first to be made by a foreign CMO in China. Commenting at the time to BioPharma-Reporter.com, Diane Lam, marketing manager for the Swedish–Chinese contract manufacturer Wuxi Griffin, said that with “less than 10 Chinese CMOs complying to western GMP,” it was likely that more international CMOs would establish a presence in China. 

de Nobel expects the growth of service providers in China, both international and domestic, to continue the foreseeable future. He told Pharm Exec, “There is an opportunity for large global contract development and manufacturing organizations (CDMOs) to help prepare local Chinese pharma companies to expand beyond China in understanding global best practices, quality standards, and other regulatory requirements that they may need to follow outside of the country.” 

He added: “The challenge is to be a global company that also establishes truly local operations that thoroughly understand the local language, regulatory, business, and cultural environment and the importance of building relationships within the country. To this end, localization of services is part of Catalent’s strategic focus for China and the APAC region.”

Risks and rewards

At 6%, China’s healthcare spending as a portion of GDP still lags behind the US (17%) and Europe (10%). But, as Chris Lo pointed out in Pharma Technology Focus in November, this indicates that “the market is still primed for further expansion.” He added that, with the healthcare market expected to reach $2 trillion in value by 2030 (the country’s over-65 population will increase from 90.6 million people in 2017 to 143 million in 2027) and the official acknowledgement that foreign companies have a large role to play in meeting the country’s health objectives, “there’s never been a better time for the pharma industry to invest in China.”

While risks remain there, Mark Mallon, AstraZeneca’s EVP of global product and portfolio strategy, medical, and corporate affairs, told the FT Pharma and Biotech Conference in November, “the opportunity to make a difference to vast numbers of people outweigh those risks.”

Julian Upton is Pharm Exec’s European and Online Editor. He can be reached at julian.upton@ubm.com