Image Courtesy : Xiang Pian
China continues to remain an important target and an attractive destination for pharmaceutical research and manufacturing. Major players from all around the world are setting up base at China to benefit from cut-price production and lesser development time, as drug development cost is approximately 20% lesser than the Western countries according to a study by GBI research. Its manufacturing output has grown at an incredible rate over the last 30 years and China has now firmly established itself as the production hub for the rest of the world.
Several multinational players are now outsourcing to China and cutting jobs in the Western regions so as to counteract financial losses from the looming patent cliff.
The Chinese pharmaceutical industry is the third largest market in the world since 2011, with an estimate value of approximately US$64 billion, according to GBI research. The country also represents the world’s largest exporter of manufactured goods.
Chinese market is currently fragmented but consolidation is increasingly being sought among domestic players. Most of the deals made in this industry in China are related to mergers and acquisitions that allow companies to integrate resources and reduce competition, while phasing out companies that are unable to keep up.
Many multinational companies are simply placing orders with contract research organizations and contract manufacturers however some are working closely with the top domestic players. Within the biotechnology industry a large number of deals have been seen, majority with foreign companies such as GSK’s co-marketing agreement with Sinopharm for the distribution of its vaccines in China, or ImmunoBiology’s agreement with Sinopharm to co-develop a tuberculosis vaccine. Several multi-nationals are also completing mergers and acquisitions with domestic companies to help integrate themselves into the market. For instance, GSK has purchased Nanjin Melrul Pharmaceutical Company, and Sanofi has purchased Minsheng Pharma in order to improve its presence in the OTC (Over the counter) drug market.
However, the major problem of poor drug quality and flawed intellectual property laws makes companies hesitant to invest in Chinese pharmaceutical firms. While China has tightened its regulations in the recent years, information about poor drug quality continue to slip through the cracks and intellectual property rights are also threatened.
The Chinese Government implemented a new licensing law in July 2012 allowing them to issue compulsory licenses to domestic pharmaceutical companies manufacturing cheap generic copies of patented drugs, towards cases of emergency or public interest. As a result this would discourage pharmaceutical companies from investing in drug development potentially setting back innovative new drug research.
Alongside the continued growth of generic manufacturing, there is likely to be a gradual shift from raw material manufacture to innovation in R&D. This will involve significant investment in the development of new actives for the main therapeutic areas, along with an inevitably increased requirement for preclinical and clinical studies.
The country also faces competition from its neighbor, India, who is also producing quality drugs and their labor costs tend to be lower as well. This also makes India an appealing market for prospect investors inturn rendering a threat to China’s pharmaceutical market success.