China Today: Defining the Chinese Biopharmaceutical Market

China's thriving economy and evolving political landscape are luring companies from around the world to explore the Chinese biotechnology market.

Eric Langer

"How big is it? How fast is it growing?" companies ask. The answers vary by industry segment.

Our new, in-depth study, Advances in Biopharmaceutical Technology in China, copublished by the Society for Industrial Microbiology and BioPlan Associates, Inc., describes the vitality and breadth of China's biotechnological achievements.

Eliza Yibing Zhou

This column is the first in a monthly series that is based on our study. Each installment will explore different aspects of China's biotechnology phenomenon.

HISTORICAL PERSPECTIVE

In 1989 China developed and marketed its first genetically engineered drug, recombinant human interferon alpha 1b. This was considered to be the official launch of China's modern biopharmaceutical industry. Since then, China's biopharmaceutical revenue has grown phenomenally—from RMB 1.8 billion (~$230 million) in 1990 to RMB 30.31 million (~$3.88 billion) in 2005. Although these numbers are still small compared with the size of the biotech industry in the West (Amgen's 2005 revenue was $12.4 billion, and is growing at 18%), this growth is greater than 16-fold. Venture capitalists are optimistic about the opportunity this represents, especially considering the country's 1.3 billion population.

China has developed and commercialized 30 biotech drugs and 150 more biopharmaceutical products are in the pipeline. Over the next five years, 40 new "Class 1" innovative biopharmaceuticals are expected to complete clinical trials and enter the market. "Class 1" refers to innovative biological products that have never been marketed in any country before, according to China's State Food and Drug Administration (SFDA).

The Chinese biopharmaceutical industry is beginning to establish itself as a research-driven, domestic, market-oriented industry. Meanwhile, China is also emerging as a global outsourcing hub for many overseas biopharmaceutical companies, especially those in the United States and Europe.

However, as companies continue to grow their business in China, a number of issues need to be resolved, including biogenerics versus innovative discoveries, intellectual property protection, quality and regulatory oversight, access to venture capital, and enterprise management.

BIOGENERIC MANUFACTURING PROVIDES THE FOUNDATION

Based on the enormous domestic need for biologics, public health policy in China established biogeneric manufacturing as a cornerstone of China's biopharmaceutical industry. As the Western world argued about the definition and legality of biogenerics, the Chinese industry quietly thrived, driven by a relatively liberal regulatory environment and a huge domestic market demand.

China is the world's most populous country but it has an immature medical insurance system: two-thirds of Chinese citizens are not yet covered by any kind of medical insurance. The Chinese spent less than $20 per capita on medications in 2003, compared with American per capita spending of $700 in the same year. Therefore, inexpensive biogenerics are deemed to play an indispensable role in the country's healthcare system. Affordable biogenerics currently dominate 95% of the Chinese biopharmaceutical market. These include 30 recombinant products, 41 vaccines, 18 blood products, and more than 300 biodiagnostic products.

Table 1. Major biogeneric Chinese manufacturers

Today, China is home to more than 400 biogeneric manufacturers, which mainly develop and manufacture generic biopharmaceuticals for the domestic population. Chinese biogenerics primarily include recombinant products, such as interferon series, colony-stimulating factor series, erythropoietin, insulin, growth hormone, interleukin-2, and various vaccines, blood products, antibodies, and diagnostic products. Table 1 lists major Chinese biogeneric products and their manufacturers. Notably, Tianjin Hualida Biotech Co., Ltd., one of the major Chinese biogeneric manufacturers, was acquired in early 2005 by Teva Pharmaceuticals, a generics giant based in Israel.

Chinese biogeneric pharmaceutical exports have also shown an upswing in recent years. In 2005, China exported $478 million of biopharmaceuticals to foreign countries, a 54% growth over the previous year. Tonghua Dongbao Group, the domestic recombinant human insulin manufacturer in China, has been exporting insulin to Germany, Italy, Egypt, Mexico, Russia, and other countries, and has generated $30 million in foreign income since 2001. Not a significant figure by Western standards, but it shows proof-of-concept that Chinese biotherapeutics can be sold internationally.

GOVERNMENT ENCOURAGES INNOVATOR PRODUCTS

China's economy is growing at an annual rate of 8.8%. China's middle class is also expanding and is now about the size of the population of the UK or France. Chinese consumers' ability to afford more expensive biopharmaceuticals, especially novel biopharmaceuticals, is also increasing.

China recognizes that intellectual property (IP) rights protection is critical to the development of its domestic industry and biopharmaceutical products. China entered the World Trade Organization in December 2001 as part of its focus on independent innovation. IP rights protection has been strengthened as one of the fundamental national strategies of China.

The government also encourages private enterprises, rather than government-subsidized, pubic research institutions. Meanwhile, the government is increasing investment in the biotechnology sector by building biotechnology parks and funding research projects. China's "863 Program," a government program aimed at supporting early-stage technology projects, has been successful in funding promising R&D projects. These efforts have provided a supportive environment for biopharmaceutical innovation.

Table 2. Novel biopharmaceuticals with Chinese-owned independent intellectual property rights

After 2003, a growing number of innovative biopharmaceuticals with Chinese-owned independent IP rights were launched on the Chinese market through the efforts of biopharmaceutical companies and research institutes. Many research-based Chinese companies, such as Shenzhen SiBiono GeneTech Co., Ltd., Shanghai Sunway Biotech, Ltd., and Beijing Biotech Pharmaceutical Co., Ltd., have gained international recognition for their products. The most productive year for innovative biopharmaceuticals in China was 2005. Seven new Class I biologics were approved for production by the SFDA that year (Table 2).

PROMISING PIPELINE

China now has a promising biopharmaceutical pipeline of more than 150 products. This includes 35 innovative products at clinical trial stages and another 30 to 40 novel products in R&D. China is the first country in the world to complete a Phase 1 clinical trial for a vaccine for severe acute respiratory syndrome (SARS) and to develop and conduct clinical trials for an avian flu vaccine. In November 2004, the first vaccine for acquired immune deficiency syndrome (AIDS) was approved for a Phase 1 clinical trial, which was completed in 2006. Table 3 lists some of the innovative products currently in the pipeline.

Table 3. A sample of innovative products in the pipeline

Tianjin Fusogen Pharmaceuticals, Inc., founded by Dr. Genfa Zhou, a US-trained Chinese scientist, has three promising anti-HIV products in the pipeline. Sifuvirtide, Tianjin's HIV fusion inhibitor, entered Phase 2 clinical trials in July 2006. The company's R&D was subsidized by funds from the national 863 Program.

Shanghai Sunway Biotech Co., Ltd., a research-based biopharmaceutical company, launched its first novel product, Recombinant Human Adenovirus Type 5 Injection (H101), in 2005. Now the company is developing H102 and H103.

LOOKING AHEAD

Compared with developed countries, China has a short history of developing novel biopharmaceuticals with established intellectual property rights. An integrated environment that favors enterprise innovation has not completely formed in terms of new drug approval, drug price management, taxation policies, and biopharmaceutical contract manufacturing. Lack of financial support still remains a big obstacle for many Chinese biopharmaceutical companies. Excess production capacity and a shortage of pipeline products are driving them to seek foreign partnerships or contract manufacturing opportunities.

Future columns will explore how these obstacles balance against China's assets, such as its extremely talented pool of scientists, low production costs, rapid growth rate, and immense domestic market potential.

Eric Langer is president of BioPlan Associates, Rockville, MD, 301.921.9074, elanger@bioplanassocicates.comEliza Yibing Zhou is project director for research programs on China and India, yb_zhou@bioplanassociates.com