China Increases its Activity in Regulated Markets By Bob Kennedy, Thomson Reuters Traditionally China has been viewed as a low-cost provider of raw materials, chemical intermediates and offpatent active pharmaceutical ingredients (APIs) but China is moving up the global pharmaceutical supply chain and they are no longer just a low-cost threat. For example, Chinese companies are developing newer molecules, they are gaining experience through partnerships with major innovator and generic companies and a few have finished dosage presence within regulated markets. API Manufacturing Sector Early last year it was reported that the Chinese government planned to invest up to $750 million to build up capacity to produce APIs for drug makers in Western countries. According to figures developed by Thomson Reuters, the number of Chinese manufacturing groups capable of supplying APIs to regulated markets has steadily increased over the last six years (see figure 1). Source: Thomson Reuters Although more than 80% of the manufacturing groups in China today are rated as Local by Thomson Reuters meaning that they are neither interested in, nor capable of supplying API to regulated markets the number of Established and Less Established Chinese groups has grown considerably since 2005. However, the really dramatic increase has been among the Potential Future companies in China that are looking to enter regulated markets despite very limited or no known performance. Over time, a number of Chinese groups have made the progression to the Less Established and Established categories by making investments in their facilities and people and gaining the experience they previously lacked by working with regulated market players (see figure 2).
Of the 13 groups rated as Established in 2011, only two groups held the same rating in 2005 Zhejiang Hisun and Shandong Xinhua. A number of others, however, have moved up in the rankings. In 2005 two of those groups were rated as Less Established, five were rated as Potential Future, one was rated as Local and the remaining three groups were not rated. It is quite remarkable that over a span of just six years, 11 Chinese groups ascended to the top of the API manufacturer rating scheme from their initial ratings in 2005. Contributing to China s success as a global hub for API manufacturing are its talented pool of scientists and engineers, lower cost base than in regulated markets, better infrastructure in comparison to India and also an improving GMP and patent protection environment. There has been an increase in the number of regulatory filings by Chinese groups since 2000 and this certainly highlights China s desire to enter regulated markets (see figure 3).
Where China leads, and in some cases has overtaken India, is in classes of fermentation-based APIs, steroids, intermediates and many base chemicals. Given this fact, it is not surprising that Chinese companies have supply agreements for APIs and intermediates with both big pharma and generics (see table 1). The majority of these supply agreements are for older off-patent molecules but some Chinese companies are developing noninfringing processes for newer molecules years before patent expiry. Among them is Jiangsu Hansoh who manufactured the API in support of Hospira s US patent challenge for gemcitabine hydrochloride injection. Source: Thomson Reuters Finished Dose Presence Because the Chinese market is large and lucrative, most companies are building up capacity to serve the rapidly growing local market with finished dose. However, a number of companies are also expanding into finished dose markets outside of China. In order to gain access to regulated finished dose markets, Chinese companies are entering into partnerships with experienced Western players (see table 2). The majority of these deals are for future co-development of finished dosage forms but Shandong Xinhua, Zhejiang Hisun and Zhejiang Huahai are currently manufacturing finished dose for regulated markets. Other Chinese groups have publically expressed their aspirations to produce finished dosage forms for regulated markets but have yet to form a strategic partnership with an experienced Western company.
In the summer of 2011, two major joint ventures were announced between Pfizer/Hisun and Merck/Simcere for the production of branded generics in China. We expect that if these joint ventures are successful, the agreements could be extended to regulated markets in the future. And recently, Lilly expanded its strategic partnership with Novast to broaden its branded generic presence in China. The collaboration may also lead to Novast providing local and regional manufacturing capabilities for Lilly s pipeline of new drug candidates down the road. After waiting many years, Chinese abbreviated new drug applications (ANDAs) became a reality in the US market in December 2010. Currently, eight Chinese groups hold a combined 28 ANDAs with final US FDA approval (see table 3). Zhejinag Huahai and Novast lead the pack with nine approvals each. All of the current approvals are for oral dosage formulations with the exception of Jiangsu Hengrui and Zhejiang Hisun, who are the only Chinese companies who hold final US FDA approval for injectable products.
Interestingly, a few applicants filed their ANDAs under more Western-sounding names. Eight of the nine ANDAs belonging to Zhejiang Hauhai were transferred to their US subsidiary Prinston and China Resources Holdings received final US FDA approval for amlodipine besylate tablets via their US subsidiary Secan. Among the 28 Chinese ANDAs with US FDA approval, approximately half of these were acquired from generics firms with a US presence (Actavis, Par, Ranbaxy, etc). We believe that manufacturing for at least some of these ANDAs will be moved to China to take advantage of lower manufacturing costs but the current US FDA backlog will likely slow down that process. In addition to those ANDAs that were acquired, 5 Chinese groups hold final US FDA approval for ANDAs developed-in house. We believe that additional filings by Chinese companies are waiting for approval. Future Prospects Post-2015, the majority of small molecule products coming off-patent will be small-volume, high-value products within the specialist-driven oncology and orphan drug categories. The brand sales exposed to generic competition will decline dramatically starting in 2013, as a result of fewer blockbuster drugs losing patent protection. Going forward, future patent expiries will be for smaller and more specialized products and only those Chinese companies with strong technological capabilities in niche areas will be in an advantageous position to profit from this future opportunity. Chinese manufacturers looking to enter the lucrative small molecule oncology market will need to invest in high potency API manufacturing capabilities. This will require specialized equipment for containment, operator training and safety practices. Biologics are another form of specialized manufacturing and it is predicted that by 2016, 7 of the 10 top selling drugs will be biologics. Several Chinese companies have launched various recombinant proteins and vaccines in their domestic market and some, including Fosun, Jiangsu Hengrui and Shanghai Biomabs, are also pursuing development of monoclonal antibodies (see table 4).
Small and medium-sized companies account for the majority of the firms in China s pharmaceutical industry and many of these manufacturers currently have heavy debt burden and a lack of funds that will impede their ability to comply with the new set of Chinese good manufacturing practice (GMP) regulations that were implemented in March of 2011. Many smaller companies will, no doubt, be eliminated from the market. This phenomenon will result in the consolidation of China s manufacturing base, weeding out players with poor quality standards while advancing the competitiveness of the remaining companies in the international market. With drug manufacturing standards significantly raised, manufacturing costs will increase but so also will product quality. Over the next several years, China s government plans to assist some 60 manufacturers in the API sector with the goal of reaching international quality standards and boosting API exports to regulated markets. Furthermore, we expect that additional Chinese companies will develop newer molecules and pursue finished dose opportunities in regulated markets through partnerships with experienced Western players. Bob Kennedy is Manager of Industry Research at Thomson Reuters and is responsible for overseeing the activities of the research team who actively collect and validate the competitive API intelligence that is contained within the Newport product suite. Bob has published several articles, appearing in Scrip World Pharmaceutical News and Specialty Chemicals Magazine, analyzing China s evolving role in the global pharmaceutical industry. He can be reached at robert.kennedy@thomsonreuters.com.