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Pharmaceutical Manufacturing and Packing Sourcer

Looking East

The pharma industry in China is vast, ranging from intermediates to active pharmaceutical ingredients and finished products, but where does the future lie?

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. What started out as local manufacturing followed by outsourcing of some basic textile processes from the West, centred in special economic development zones situated around costal-urban hubs in the South and East of the country, has progressed into a vast array of products, including those of hightech industries such as pharmaceuticals

This change can be seen in the opening of advanced R&D centres by large multinational pharmaceutical companies, such as GSK, Pfizer and Merck, and the recent opening of a western car manufacturing plant in Beijing. While the majority of the rest of the world’s major economies have remained fairly stagnant since the global economic crisis of 2008, China has bucked this trend and continued to grow at a steady rate. Reports have generally indicated a continued annual growth of eight per cent, which has outstripped even China’s own forecasts. International demand will ultimately limit this export growth so the question still remains: where does the future lie for the pharmaceutical industry in China in both manufacturing and R&D?

Overview

In November 2012, China undertook its once-a-decade handover of power, with Xi Jinping now heading the controlling Politburo Standing Committee, the country’s top political body. The official handover reinforced many of the proposals put forward in the 12th five-year plan in 2011 aimed at raising China’s position in the value scale within manufacturing towards innovation. In particular, the biotech industry is one of seven key sectors which will be targeted for this improvement. Ultimately, this will result in China focusing on the manufacture of more valuable commodities, such as the manufacture of off-patent generics and innovative R&D for new pharmaceuticals developed entirely in China. This innovation will be boosted by both investment and the strengthening of intellectual property protection within China. Success will rely both on domestic Chinese companies operating independently, and on joint ventures with international companies. Many of these companies are already starting to view China not only as a source of raw materials, but also as a key R&D centre from where a new market for patented drugs will develop.

Key Factors

The international perception of the quality of Chinese manufacturing is perhaps unfairly viewed as a cheaper and often somewhat inferior product. However, while manufacturing costs are undoubtedly lower – due to lower costs for raw materials and labour – this should not automatically be equated to inferior quality. In the pharma industry in particular there exists an excellent level of technical capability in the country, with an ever-increasing wealth of science and engineering graduates catering for the industry.

Unfortunately, every industry in the world is going to be subject to illicit trade and counterfeiters. However, pharmaceuticals are obviously among a smaller group of industries where the damage is not just economic, but can also be of significant risk to human health. Counterfeit pharmaceuticals fall into various categories, with varying levels of potential risk to the end user. These range from simple labelling issues, such as extension of expiry dates or incorrect manufacturer details, to the incorrect level of active ingredient or different bioavailability Contamination is also a significant factor which can pose potentially serious health risks. High-profile examples will always make the headlines, with the heparin case being one of the most prominent, but there is no evidence to suggest that the problem is more prevalent with pharmaceuticals produced in China than in most other regions. A review of regulatory websites, such as the UK’s Medicines and Healthcare products Regulatory Agency and the FDA in the US, will provide numerous reports on various cases of counterfeit or insufficiently tested/ regulated pharmaceuticals and products. However, an Organisation for Economic Co-operation and Development report recently claimed that only six per cent of reported counterfeit pharmaceuticals originated in China, which is a relatively small proportion given the high volumes manufactured there (1). Instead, a considerably greater percentage – 75 per cent of all counterfeits – were reported to have originated in India, with other developing countries where there are less tightly controlled regulations also contributing greatly to the problem.

Several high tech methods of validating the quality of drugs are being developed which would help the end user to be reassured of the product’s origins and quality. These methods have been discussed in recent months in PMPS (2), but how can pharmaceutical companies in the US and Europe be sure they are purchasing quality active pharmaceutical ingredients (APIs) in the first instance?

The key is to procure through reliable sources, which will allow full accountability and traceability in a continued consistent manner. This will ultimately result in a reliable source for API or finished product. However, this does not come without its difficulties. With significant cultural differences in business dealings – including language and time differences, along with the logistics involved in visiting suppliers to perform vendor assurance – there are perhaps many barriers for sourcing APIs from China. Many of the Big Pharma companies use joint ventures to set up long-term arrangements with manufacturers and allow them to operate with a trusted partner. Indeed, in September 2012, both Merck and Pfizer entered into joint venture partnerships with Chinese companies in order to increase their market share and reduce manufacturing costs. Furthermore, well-known CROs better known for their presence in Europe and the Americas are themselves beginning to place facilities within China. Another successful method is to employ a trusted and knowledgeable agent or distribution company to act as an intermediary. With local knowledge of both the manufacturer’s activities and reputation, along with the required regulatory processes, this is another popular method of ensuring reliable and assured sourcing and protecting the supply chain.

Looking Ahead


There has been an increased drive for Good Manufacturing Practice (GMP) inspection of facilities and processes for all stages of the manufacture of APIs for international markets. This comes from the US FDA, the European Medicines Agency (EMA) and the Chinese State Food and Drug Administration (SFDA), where similar regulations on GMP requirements for imports exist. The EU has issued new regulations which will be implemented in two stages in 2013 (3); this will ultimately require the GMP credentials of all imports to be confirmed by the national authority of the exporting country. Pharmaceutical companies wishing to export to, or import from, China will require logistical and robust methods to ensure this traceability and accountability. This will involve having the capability to arrange the GMP audit of Chinese manufacturers to meet the FDA or EMA requirements for imports from China. Future forecasts suggest growth will come from local consumers with only minimum growth predicted from exports. The reasons for this are two-fold: firstly a realisation from the Chinese government that export growth could not continue to grow at the same rate indefinitely, which forced a redirection to the domestic markets; and secondly, more affluent, middle class Chinese consumers looking for better healthcare, combined with an ageing population, which will lead to a large increase in the domestic pharmaceuticals market in China.

In 2009, a major investment strategy was commenced to develop the Chinese healthcare system; the resulting investment and further development is predicted to continue over the next decade. This will lead to a more even distribution of services nationwide and equal access to pharmaceuticals in rural areas comparable to that which already exists in the larger cities. Ultimately it will result in an increased requirement for pharmaceuticals in China and will present opportunities for both international and Chinese pharma companies and manufacturers. International pharma companies will benefit from this increased requirement by seeking to register and license their products for sale in China, and thereby access this rapidly expanding market. The expansion of the domestic pharmaceutical market, which is backed by the government, is likely to provide a consistent increase in the demand for cheaper generic drugs. From the outside looking in, this may seem a complex process for non-Chinese companies to undertake. The process of registering and gaining approval for a new pharmaceutical in any country comes with its own set of requirements and challenges but, once familiar with these, the benefits of accessing such an extensive market can be rewarding.

There are many anecdotal reports of manufacturing previously outsourced to China returning to the West. There is also speculation that should monetary factors lead to a lack of competitiveness in China, there may be movement of manufacturing to cheaper shores within Asia. While there may be some truth in these stories in other labour-intensive industries with low margins, the pharmaceutical industry does not seem likely to go the same way. There is simply too much successfully established infrastructure in place in China for this to be transferred and based in any other country. It seems unlikely that it could be supplanted by any other country with access to a sufficiently large and highly trained workforce which could competitively accommodate the pharma industry, especially with the prohibitive set-up costs. Instead, numerous Big Pharma companies are undertaking joint venture operations with new facilities in China, as well as with the existing Chinese manufacturing facilities for generic pharmaceuticals. This will cement and prolong China’s place as a major player in the pharmaceutical industry.

Conclusion

Overall, the continued strength and further growth of the pharmaceutical industry in China appears to be likely. 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. Consequently, this will provide further growth for the rising number of domestic and international CROs based in China.

References

  1. The Economic Impact of Counterfeiting and Piracy, OECD, ISBN: 978-92-64- 04551-4. Visit: www.oecd.org/sti/ industryandglobalisation/the economicimpactofcounterfeiting andpiracy.htm
  2. Clarke S, Anti-counterfeiting: hidden gems, Pharmaceutical Manufacturing and Packaging Sourcer 57: pp44-46, November 2012
  3. European Commission website. Visit: http://ec.europa.eu/health/files/ documents/active_pharmaceutical_ ingredients_leaflet_en.pdf



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Iain Nicolson is Technical Director for Fountainbridge Ltd with an MChem and PhD in Organic Chemistry from the University of Edinburgh. He is an expert in structural elucidation and organic synthesis, and has experience working in global CROs in metabolite/impurity identification and reference standard synthesis. His current role involves business development and technical involvement in custom synthesis projects.

Oliver Smith
is Managing Director of Fountainbridge Ltd. He is a skilled and experienced synthetic and analytical chemist with a BSc in Chemistry from Heriot Watt, Edinburgh. Having studied business and language in China as part of the METP5 programme, he is now fluent in Mandarin and permanently based in Shanghai, overseeing sourcing activities there.

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Iain Nicolson
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Oliver Smith
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