Contract Research Drives China's Pharma Sector

Contract research is both a vehicle for Chinese pharmas to expand their R&D expertise and quality levels, and a bridge for them to enter global markets.

By Yibing Zhou, BioPlan Associates, Inc.

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China’s pharmaceutical sector has maintained steady growth over the past few years. Last year, total revenues increased by nearly 26%, moving to $54.6 billion (437.3 billion RMB).

Changes in the competitive landscape, notably China’s entry into the World Trade Organization (WTO) in 2001 and the development of a regulatory system through the establishment of China’s State Drug Administration (SDA, now called the SFDA), are fueling the growth of contract manufacturing and contract research. Also driving this growth are the hai gui, Chinese nationals who return to China after gaining professional experience in Western biopharmaceutical companies.

“The Chinese authorities have brought pharmaceutical regulations forward 20 years in the past six. That is an impressive feat,” said James McClurg, Ph.D., senior vice president and CSO at MDS Pharma Services, a Toronto-based clinical research organization (CRO) with a branch in Beijing.

To access the tables that accompany this article, click the Download Now button at the end of the page (after Bibliography).

One critical milestone was reached in September 2003, when the SFDA issued Good Clinical Practice (GCP) standards, which clearly defined CRO and stipulated for the first time that CROs in China could conduct clinical trials on behalf of their clients.

Growth within China’s CRO sector, in turn, is driving the development of the nation’s pharmaceutical industry, and enhancing opportunities for international collaboration. “China ... today accounts for a small part of the value of the pharmaceutical and biotechnology industries relative to its huge population,” said Dennis Gillings, CEO of Quintiles Transnational at the Boao Forum for Asia’s World Pharmaceutical Industry Conference in Taizhou. “But its share of the pharmaceutical market value will grow many times by 2030,” he predicted.

Driving that growth will be CROs. This article will examine the growth of CROs in China, and point out emerging trends in the nation’s CRO sector.

Since the early 1990s, more and more Chinese Contract Manufacturing Organizations (CMOs) have engaged in Active Pharmaceutical Ingredient (API) production, and many are endeavoring to meet international production standards for finished drugs. In 2004, Chinese CMOs generated $7.5 billion (RMB 60 billion) in domestic output, accounting for 13% of the country’s gross pharmaceutical output — not an insignificant figure given that contract manufacturing is still young in China.

CROs emerged in China in the mid-1990s, when several of the world’s leading CROs established a presence in Beijing. Contract research has experienced explosive growth since then, and today China is home to more than 300 CROs of all sizes. This growth has been fueled by demographic changes and economic trends, as well as recognition of the opportunities associated with a market whose potential has been estimated at up to $1 billion (8 billion RMB).

Contract Research in China

Currently, the U.S. and Europe dominate contract research, with 88% of a $16.3 billion global market that grew by 14% last year. China’s CRO market is very small by comparison right now, accounting for $62.6 million (RMB 500 million) in 2004, but significant growth is expected as the average costs for developing a new drug continue to rise. The cost of drug development in China is 20% of that of in the U.S. and many other countries.

China’s pharma sector faces both challenges and opportunities (listed in Table 2; click the Download Now button at the end of this article to access a 2-page PDF containing Tables 1 and 2), but the establishment of Good Clinical Practices (CGP) and China’s entry into the WTO, plus the government’s pledge to increase IP protection, promise to continue its growth trend.

In 1996, MDS Pharma Services became the first foreign-based CRO to operate in China, focusing on clinical laboratory functions, Phase III multi-center trials and site management. Following that, other leading CROs — such as Quintiles Transnational, Covance and Kendles — also entered the Chinese market. At this point, only MDS’s and Quintiles’ Beijing labs have obtained accreditation from the College of American Pathologists (CAP).

Meanwhile, a growing number of global pharma companies including Novo Nordisk, AstraZeneca, Eli Lilly, Roche and Pfizer, have established or plan to establish R&D centers in China. Each is looking for Chinese CRO partners; so are domestic Chinese pharma companies.

Even as Chinese pharmas have made GMP modifications, 45% of their production facilities are idle, presenting a significant financial challenge. As a result of this excess capacity, Chinese pharmas are essentially operating under a CMO model, and some are aggressively seeking contract manufacturing opportunities overseas to keep their facilities running.

Currently, 259 products associated with 130 Chinese manufacturers have obtained cGMP certification from the U.S. Food and Drug Administration (FDA), and 50 manufacturers have obtained 90 European COS certificates. Among them, 10 finished drug manufacturers have received cGMP certification from FDA.

China’s more than 300 CROs form an integrated service chain, addressing everything from pharmacogenomics to clinical trials, new drug applications, new drug transfers and exporting. The majority of Chinese CROs are small and simply provide regulatory consultation, drug application and clinical trial assistance to overseas pharma firms. Of these, more than 100 are capable of conducting R&D.

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