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European Pharmaceutical Contractor

Making Progress

 

Chinese CMOs have experienced rapid growth in recent years, and with careful consideration of local regulations can offer significant advantages to those looking to outsource manufacturing.

As the outsourcing of manufacturing materials and products to other countries continues to increase, contract manufacturing organisations (CMOs) in China should be considered. China offers a relatively low-cost, highly-skilled and educated workforce and, with the convergence of global supply chains, it is not surprising that CMOs in China continue to experience rapid growth. This article will provide an overview of the fundamental factors that should be in the mind of companies contemplating engaging a CMO in the country.

Aided by government incentives and the infusion of foreign and domestic capital, the pharmaceutical contract manufacturing industry in China has experienced tremendous growth in recent years. The industry is undergoing a period of expansion and consolidation among domestic players, while leading multinational companies also continue to expand, including China in their operations. Consequently, companies looking to benefit from the cost advantages associated with contract manufacturing in China now have more options than ever.

Contract manufacturing in China continues to face challenges in terms of regulatory, quality and intellectual property protection issues, but there has been improvement through continued regulatory reform, oversight by applicant holders and to a certain degree the enactment of new Chinese GMP regulations that are more closely aligned with US/EU requirements, along with an increased focus from the Chinese government on intellectual wproperty (IP) protection initiatives in response to demands by domestic and foreign companies.

CMO Due Diligence

Due diligence is the single most important activity when considering manufacturing in China. The use of third-party consulting firms to assist in the evaluation of the Chinese CMO’s quality systems capability – which includes facilities, utilities, equipment, manufacturing capability, laboratory testing, warehousing and distribution systems, as well as an overall understanding of how to implement and sustain robust quality systems – will greatly reduce the time and expense involved with the selection of an appropriate CMO.

Whether considering a joint venture partner or a contract manufacturing arrangement, there is no substitute for a thorough due diligence process. This is true regardless of the country involved, but particularly important when cultural and language differences can have a significant impact upon business dealings. The due diligence assessment should include a comprehensive legal, regulatory and quality systems review that includes an on-site inspection of the manufacturing site. The review of any prospective CMO should, at a minimum, consider the points listed in Essential criteria for CMO selection (right). The list is by no means exhaustive, but should be considered as part of your due diligence.

 

 

Protecting your Investment

In addition to conducting thorough and deliberate due diligence in selecting a CMO, it is also essential to take steps to protect your company’s key assets through a robust IP protection strategy and ongoing quality assessment programme.

While the Chinese government has taken significant steps in recent years to address IP concerns of foreign and domestic companies through the enactment of legislation, enforcement of IP rights through the Chinese legal system remains problematic. Furthermore, foreign companies all too often limit their options by failing to register their IP in China or incorporate appropriate protections into their contracts with Chinese manufacturers. For example, China uses a first-to-file system for the registration of trademarks, so it is worth registering trademarks immediately to prevent being excluded from the Chinese market or even having exports blocked by Chinese customs based on a claim by another party that registered first. Additionally, it is useful to go beyond a traditional non-disclosure agreement (NDA) with the CMO to also include specific prohibitions on sharing IP with contractors or other related parties, using your company’s IP to directly manufacture competing products, and selling directly to your company’s customers (2). Legal counsel with expertise in Chinese law should be retained to advise on specifi c legal issues, including IP registration and the drafting of CMO manufacturing agreements, which should be written in Chinese and tailored to China’s requirements rather than an adaptation of documents used in the US or Europe.

In order to protect customers, limit liability, and maintain brand value, your company should take steps to ensure that the CMO meets quality requirements as clearly stipulated in the contract manufacturing agreements. In addition to the quality systems and regulatory compliance assessments/ audits conducted as part of the due diligence process, should you select the CMO, consider proactive approaches to ensure that your products are manufactured to meet your expectations, such as providing oversight during the initial manufacturing of your products, making frequent visits to the site, and reviewing the quality test data and quality records. In addition, provisions of the CMO agreement should include a technical agreement that contains your specifications and a quality agreement that includes provisions for the following:

  • Frequent visits
  • Oversight during the manufacturing of your products
  • Requirements for approval of any changes (or example, to the facility, equipment, materials, components and so on) prior to implementation
  • Notification of any initial out-ofspecification (OOS) test results and/or stability failures 
  • The ability to evaluate any deviations and/or investigations as well as review the manufacturing batch record

Conclusion

Pharmaceutical companies looking to benefi t from the low-cost advantages of contract manufacturing in China have more choices than ever before and through careful due diligence, companies can minimise potential risks related to quality and/or intellectual property protection while realising the benefi ts of using a CMO in China. This article is intended to highlight the fundamental considerations when selecting a CMO in China, but as readers are surely aware, there can be no substitute for thorough due diligence, including seeking necessary outside expert advice from knowledgeable counsel and consultants.

References:

  1. Chen HLT, Shanghai Food and Drug Administration issuesregulation for domestic processing and manufacturing of foreign pharmaceutical companies, The National Law Review, 9th September, 2011, available at www.natlawreview. com/article/shanghai-food-anddrug- administration-issuesregulation- domestic-processing-and- manufacturing
  2. Harris D, Why non disclosures (NDAs) are not enough for China, China Law Blog, 22nd February, 2010, available at www.chinalawblog.com/2010/02/ all_lawyers_will_tell_their.html

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Maxine K Fritz is Executive Vice President of the Pharmaceutical and Biologics Practice at Becker & Associates Consulting, Inc. She provides clients across the globe with strategic, tactical, and technical advice to assist them in developing practical quality assurance, manufacturing, and regulatory strategies for compliance with FDA regulations. Maxine is a former FDA investigator and Biologics Team Leader with specialised expertise in biological and pharmaceutical product inspections. She has 23 years of combined FDA/industry management experience, including a variety of pharmaceutical quality activities such as validation, vendor qualification, internal/external audits, batch record review, product release, investigation of non-conformances, current good manufacturing practices (cGMP) training, and aseptic manufacturing.

Scott Tatlock is a Senior Consultant at Becker & Associates Consulting, Inc. Scott is actively involved in Becker Consulting’s growing Asia practice. He has expertise in Chinese food and drug regulatory policy as well as extensive knowledge of Chinese market conditions and legal requirements. His direct work experience in greater China cuts across a number of sectors, including pharmaceuticals, medical devices, financial products and market research. Scott is fluent in written and spoken Mandarin.

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