Opening up the Chinese drug market

China’s pharmaceutical market is in great shape. The second largest in the world, coming in just behind the US, it is also one of the fastest growing. It is expected to surge from $123.7bn in 2016 to $573.5bn in 2022, a compound annual growth rate of 30%.

The country has a large and diverse domestic drug industry, comprising around 5,000 manufacturers. Many of these are small or medium-sized, and base their businesses on generics, active pharmaceutical ingredients (APIs) or traditional Chinese medicine.

In recent years, these companies have benefited from strong government support for innovation. Spurred by policies such as preferential pricing for innovative drugs, China has become the world leader in API manufacturing and exports, and the second highest investor in R&D.

The market is also becoming increasingly attractive to foreign pharma companies. With an ageing population (exacerbated by the strict one-child policy in place between 1979 and 2015), China’s demand for drugs is growing fast, and Western drug makers are keen to capitalise.

But foreign companies operating in China do not always have an easy ride. While not exactly deterred from entering the market – the world’s top 20 multinationals have all set up operations in the country – they are often forced to contend with drug approval delays, intellectual property violations and a lack of transparency.

According to data and analytics company GlobalData, the frustrations do not end there.

“In order to enter the Chinese market, the foreign companies have to initiate local clinical trials for their products despite approval in other countries. This increases the R&D costs and leads to delay in drug approval,” says Vikas Bedi, APAC healthcare research director at GlobalData.

“China lacks patent linkage rules to resolve disputes before infringing products are launched on the market. And the lack of strict vigilance over counterfeit medicines poses a threat to its trading partners for the foreseeable future.”

The big question is whether recent regulatory reforms could change the status quo. In 2015, the China State Council issued the ‘Opinions on Reforming the Review and Approval System for Drugs and Medical Devices’, with a view to creating a new framework for R&D. The aim was to eliminate the existing backlog of registration applications, as well as establishing an environment conducive to high-quality generics and increasing the transparency of the approvals process.

As the government would have it, China wants to ‘promote the structural adjustment, transformation and upgrade of the pharmaceutical industry and bring marketed products up to international standards in terms of efficacy, safety and quality, so as to better meet the public needs for drugs’.

Since then, there have been a number of additional reforms. The country has changed its policy on contract manufacturing organisations (CMOs), opening the door to foreign CMOs for the first time. The China Food and Drug Administration (CFDA) announced that it now plans to accept overseas clinical trial data. The registration requirements for imported drugs have been softened; drug lag times have been shortened; and foreign investors are being encouraged to undertake global studies in China.

Many further changes could be cited – and there are likely many more to come. Most recently, the country announced an administrative reshuffle, which will create a new and improved China Drug Administration to replace the existing CFDA.

Overall, these changes aim to encourage innovation and reduce the regulatory burden on the life sciences industry. As Bedi explains, they should greatly improve matters for foreign players looking to operate here.

“The significance of these reforms is substantial for multinational corporations, particularly considering the size of the Chinese pharmaceutical market,” he says. “Already, these reforms have led to changes within the Chinese pharma industry, and appear to have assuaged some foreign companies’ concerns.”

While it is too early to quantify the true impacts, there are strong grounds for optimism. To take just one example, hundreds of people have been employed to tackle the backlog in registration applications. In 2015, there were around 70 reviewers at the Center for Drug Evaluation, tasked with handling an annual load of more than 7,000 drug applications. By the end of 2016, 600 reviewers had been hired, with a further 223 new employees added to the ranks in 2017.

On a similar note, far more foreign drug applications are now being submitted (the figure increased from 13 in 2016 to 37 in 2017) and nearly twice as many drugs overall are being approved. The new priority review pathway, which aims to reduce approvals time from five years to just six months, led to 50 drugs receiving fast entry to the Chinese market last year.

One example was Tagrisso (osimertinib) for non-small cell lung cancer. Approved in 2017 – just 16 months after it received approval from the US Food and Drug Administration in 2015 – the drug was the first AstraZeneca medicine to be approved under the new system.

“Tagrisso has set an example for CFDA to allow foreign drugs to meet Chinese patient’s needs,” says Bedi. “With the changes in foreign drug registration, China is now parallel with the US or EU.”

He adds that the CFDA has also created a new classification, ‘new to the world’, to replace the previous ‘new to China’. This serves to bring China’s classifications into line with other regulatory agencies around the world.

“The introduction of a strong regulatory framework and a move towards transparency is designed to bring about positive transformative changes,” he says.

Moving forward, Bedi expects to see additional reforms, such as those relating to the acceptance of artificial intelligence during medical treatment. He also hopes to see the streamlining of pharmaceutical distribution channels, which will cut costs and oust sub-par distributors from the market. Structural changes of this nature will have important implications further down the line.

“According to GlobalData, foreign investors will shift their perception of China from an international manufacturing base to a more promising strategic market with an efficient R&D set-up,” Bedi says. “The market is surely and steadily opening up to global players by shunning protectionism and projecting an image of efficiency, transparency and opportunity.”