BEIJING - Asia's expanding wealth and markets for drugs, combined with a pool of scientific talent and strengthening protections for patents, are propelling pharmaceutical multinationals to step up operations in the region in drug manufacturing, research and clinical trials.

And, despite risks that range from varying quality control standards to uneven enforcement of intellectual property protections, China is emerging as Asia's leader as an outsourcing destination for top pharma companies, according to researchers at PricewaterhouseCoopers.

China's fast-paced economic growth is one factor behind the trend, said Beatrijs Van Liedekerke, an associate director at PwC in Beijing.

If current growth trends continue across both sides of the Pacific, China could overtake the U.S. within the next two decades to become the world's largest economy. "China could become the second or third biggest pharmaceutical market in the world by 2020," Van Liedekerke said in an interview.

The number of advanced degrees awarded in the sciences is on the rise in China; industrial infrastructure is improving; and the cost of talent and conducting trials is still lower than in the West. These factors are spurring pharmaceutical multinationals to outsource an increasing proportion of manufacturing and research to China, and are even changing the structure of some MNCs.

"The pharmaceutical business model is moving away from a fully integrated company structure toward a future where companies use a wide range of outsourcing, partnership initiatives and other contractual and relationship arrangements to create networks of collaboration and discovery," according to a report Liedekerke co-authored.

Eli Lilly is one leader in the move toward the new model - a fully integrated pharmaceutical network strategy - where Lilly serves as the hub to a number of partnerships, signing development deals with smaller companies such as China's Chi-Med and India's Piramal Healthcare, where the smaller partner takes on a greater share of the risk and potential rewards (Also see "Lilly, Merck Deals Mark Start Of New Era For Indian Drug Firms – PharmAsia News Spotlight" - Scrip, 19 March, 2008.).

Low Costs Still An Advantage, But Safety A Concern

Although China is gradually moving upward in the worldwide pharmaceutical value chain, the country's current strength is still based on its low-cost production of chemicals and active pharmaceutical ingredients. "Chinese API producers are among the largest in the world," Van Liedekerke noted.

China provides a significant cost advantage in manufacturing, but also presents risks in quality and safety standards. Scores of adverse reactions in the U.S. over the last year linked to adulterated heparin imported from China has focused a spotlight on this issue. "Recent reports of deaths linked to contaminated heparin in the U.S. sourced from China highlight the critical issue of quality," according to the report co-authored by Van Liedekerke (Also see "U.S. FDA Triples Estimate On Deaths Following Allergic Reaction To Blood Thinner Heparin" - Scrip, 14 April, 2008.).

"Companies need to carry out extensive scrutiny of potential outsourcing candidates," said Van Liedekerke. "Companies need to do due diligence whenever they plan to outsource activities," she added.

To ensure safety, she explained, "you need to do a risk assessment of the entire supply chain."

Meanwhile, the export of contaminated heparin to the U.S. took place against the backdrop of overall improvements in drug processing standards in China. The government has also been examining foreign food and drug regulations in an effort to strengthen its own regulatory regime (Also see "Focused On Globalization, Shanghai FDA Will Hold International Forum On Drug Safety And Regulatory Change" - Scrip, 3 October, 2008.).

Van Liedekerke said that China is still on track to see its exports of active pharmaceutical ingredients soar.

China's API companies made sales of just under $6 billion in 2007, and are expected to bring in nearly $10 billion by 2010, through an annual increase of 17.6 percent, according to PwC projections.

Comparatively low costs are also triggering a spike in the number of clinical trials being held in China. China recently overtook India as Asia's fastest growing location for clinical trials, noted Van Liedekerke (PharmAsia News, Sept. 22, 2008).

"Almost all foreign CROs operating in China are providing clinical trial services and some domestic CROs have started offering biology and chemistry as well as preclinical and clinical trial services," she explained.

Global R&D outsourcing is fueling a boom in China's contract research sector: "In 2007, the contract research market in China was estimated at $186 miillion," said Van Liedekerke. By 2012, that figure is expected to climb to $791 million.

During the next several years, China also aims to expand its export of finished drugs produced by contract manufacturers and by makers of innovative products. Last year, the export value of finished drugs reached about $700 million, a figure that is projected to increase to $1.88 billion by 2010.

"The Chinese government is trying to stimulate domestic players to develop innovative drugs," said Van Liedekerke. And as a widening range of Chinese pharmaceutical companies begin to patent their products, this will impel China to strengthen and uniformly enforce its intellectual property laws, she added.

Better intellectual property rights protection and regulatory standards for the pharmaceutical sector, in turn, will prod more multinationals to seek out contract manufacturing organizations in China.

- Kevin Holden (pharmasia@elsevier.com)

[Editor's note: PharmAsia News will host a webinar Oct. 15 for pharmaceutical and medical device firms entitled "U.S. FDA Inspections in China." For more information, please click here.]

China Emerging As Big Winner In Pharma Outsourcing Rush To Asia - PwC

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