China is the fastest growing economy in the world today. In 2004, GDP in China grew by 9.0%, while in 2005 it grew by 9.8%. Analysts predict that China’s economy will continue to grow at 8% to 9% per annum through 2010.
With one-fifth of the world’s population living in China, healthcare consciousness is on the rise, and many citizens are increasingly interested in quality healthcare. In fact, China spent more than $80 billion on healthcare in 2003, double its spending in 1998. Despite this increase in spending, however, healthcare capacity has not been able to keep up with China’s overall growth. Many Chinese do not have health insurance of any kind and are forced to pay large out-of-pocket fees. The situation worsens when one looks at rural inhabitants (about 900 million people), as only 19% of China’s healthcare resources reach the rural interior.
As China becomes more developed, its epidemiological profile is also changing. With increased smoking and eating, with less time for exercise, cardiovascular disease is now on the rise, having become the most frequent cause of death in China. Furthermore, doctors are seeing more patients in their 20s, 30s, and 40s suffering from cardiovascular disease, leading to increased demand for cardiovascular drugs. Drugs in other therapeutic categories, including respiratory, anti-inflammatory, anti-ulcer and drugs to treat neurological disorders are also in high demand.
China’s pharmaceutical market is currently the ninth largest worldwide and worth approximately $20 billion . Analysts forecast that China’s pharmaceutical market will become the fifth largest in the world by 2010, with the OTC market growing to be the largest in the world within ten years. The table below shows China’s pharmaceutical market as the second largest in Asia.
|Country||Pharmaceutical Market Size|
|China||US $20 billion|
|Hong Kong||US $1.5 billion|
US $350 million
US $55 billion
US $210 million
US $300 million
US $400 million
US $6.3 billion
US $2.5 billion
US $1.5 billion
*Source: Pacific Bridge Medical
While there are many domestic Chinese pharmaceutical companies, foreign drug companies remain the dominant players in the Chinese market. Currently, a large percentage of domestic pharmaceutical companies in China are not prepared to compete with foreign companies. Ten to twelve years ago, many foreign drug firms decided to partner with local drug firms in Sino-foreign joint ventures (JV) to succeed in the China pharmaceutical market. However, over the last five years, more and more foreign drug companies are setting up their own wholly foreign owned enterprises (WFOE) without Chinese partners.
OVERVIEW OF THE HEALTHCARE SYSTEM
Healthcare Services Sector:
Currently, China’s medical services sector is struggling as many people cannot afford adequate healthcare services. According to a national health survey taken in 2004, nearly 50% of people who should seek medical care do not. About 47% of urban citizens and 31% of rural inhabitants self-medicate instead of going to hospitals, while about 9% of urban citizens and 13% of rural inhabitants choose not to use any medication even after being diagnosed with a disease.
These issues arise partially due to the high cost of medical treatment in China, where medical service costs have increased at a faster rate than annual salaries. In addition, close to half of all urban residents are not covered by medical insurance. The closing of many state-owned enterprises in the late 1990s, which provided healthcare for employers, left about 50% of urban workers without health insurance. Over 80% of the population is without any form of health insurance.
Most hospitals in China are state-run and are divided into three tiers. Tier 3 hospitals are the largest and most sophisticated, tier 2 hospitals provide general medical services, and tier 1 hospitals are clinics that provide basic medical care but no advanced medical services. There are also small community healthcare service centers which are not classified into the tier system. Many of these hospitals receive minimal funding from the government, and doctors are often paid small salaries ($5,000 to $10,000 per year), so many rely on pharmaceutical sales to supplement their incomes.
HOSPITALS IN CHINA
|TIER 3: LARGE GENERAL HOSPITALS||TIER 2: MEDIUM-SIZED GENERAL HOSPITALS||TIER 1: POLYCLINICS|
|≈ 976||≈ 5197||≈ 2673|
*South Medicine Economic Research Institute
Brief Overview of Pharmaceutical Regulations:
The basic regulations for the government’s administration of the pharmaceutical industry in China are outlined in two major laws. These laws regulate all pharmaceutical areas, including drug manufacturers, drug distributors, pharmaceutical use in medical institutions, new drug registrations, drug packaging, pricing, advertising, and post-marketing surveillance.
First, the Drug Administration Law of the People’s Republic of China was revised at the 20th Session of the Standing Committee of the 9th National People’s Congress on February 28, 2001 and became effective December 1, 2001.
Second, the Regulation for the Implementation of the Drug Administration Law of the People’s Republic of China was approved by the State Council and became effective September 15, 2002.
In 2003, the State Food and Drug Administration (SFDA) was created, replacing the State Drug Administration (SDA). The SFDA was modeled after the US FDA, and operates under the control of the State Council. The SFDA is the governing body that regulates all drugs, food, health food, and cosmetics and controls all registration, inspection, sales, research and advertising for these products.
The SFDA is also in charge of all new drug registration approvals. Drug registration in China is still complex and takes approximately two years for new drugs. In addition, if a product is approved elsewhere, the SFDA will most likely still require the foreign manufacturer to conduct at least some clinical testing in China before the drug is approved in China.
Classification of Drugs:
In China, drugs are divided into 3 categories: (1) Chemical Drug, (2) Biological Drug or (3) Traditional Chinese Medicine. Under these 3 categories, there are various classes. New Chemical Drugs have 6 classes, Biological Drugs have 15 classes, and Traditional Chinese Medicine has 9 classes. These classes mostly demonstrate and distinguish how a drug and its preparation process have been marketed, especially in regards to China. For example, Class 1 of Chemical Drugs refers to a new drug which has never been marketed in any country, while Class 3 of Chemical Drugs refers to a new drug which has only been marketed outside of China.
Drug Registration Application:
Drug applications themselves are also divided into different types. The four types of applications are described below.
1. New drug applications:
Classes that fall into this category include Class 1 to 5 for new Chemical Drugs, Class 1 to 14 for new Biological Drugs, and Class 1 to 8 for new Traditional Chinese Medicine.
2. Abbreviated new drug applications:
Similar to a generic application, abbreviated new drug applications can be used for drugs that already have a specification in China, which are related to Class 6 of Chemical Drugs, Class 15 of Biological Drugs, and Class 9 of Traditional Chinese Medicine.
3. Registration supplements:
Registration supplements are required for changes to already-approved drugs. There are a total of 27 kinds of supplements. Seventeen of these require the SFDA’s approval; another 10 situations only need to file for record with the SFDA. In the latter cases, the SFDA only needs to know that a change was made.
Some examples of when a supplemental application would be required, with SFDA approval, are described as follows:
- The New Drug Certificate holder files an Application for a Drug Approval Number for a new drug.
- Trade Name for drug is already marketed in China.
- Change of the packing material or container for the drugs.
Some examples of supplemental applications that need to be filed for record at the SFDA are as follows:
- Change in the name of a domestic drug manufacturer.
- Internal change in the manufacturing company of a domestic drug manufacturer.
- Amendment to the drug insert sheet according to national drug standards or as required by the SFDA.
4. License Renewal :
Import licenses are valid for 5 years; renewal applications should be submitted 6 months prior to the product license expiration date.
Application Documents for New Drug Registration :
The new drug registration application consists of four sections:
- Summary materials
- Pharmaceutical research materials
- Pharmacological and toxicological research materials
- Clinical research materials
For each section, the SFDA has issued a detailed documents list for (1) Chemical Drugs, (2) Biological Drugs and (3) Chinese Traditional Medicine. Overall, during the registration process, pharmaceutical companies should not encounter problems with different data requirements in China and foreign countries. Registration document requirements in China all follow ICH guidelines, meaning that requirements are fairly similar for China, the United States, and the European Union. Problems often arise, however, when a drug company does not want to submit sensitive, confidential data for drug registration in China. These companies are often reluctant to divulge information about the manufacturing process or quality control of raw materials. Drug companies registering a drug must discuss the case informally with experts from the Center for Drug Evaluation in order to find out what the minimum requirements are for their therapeutic area. Camouflaging key IP is something that some drug companies do.
For summary materials, information required include the drug name, package labels, drug manufacturing license, and GMP certificate. Pharmaceutical research materials consist of such information as the manufacturing process, experimental data for confirming chemical structure and components, and drug stability research data. Documents required for pharmacological and toxicological research materials are similar, such as mutagenesis research data, carcinogenesis research data, and other data. Clinical research materials include information on the planned clinical research protocol plan to be conducted in China, investigator brochure, and other materials.
Different classes of drugs have different requirements for the above documents. For abbreviated applications for Class 6 chemical drugs, some of the above documents can be waived or summary reports can be substituted.
Therapeutic Biological Drugs:
Summary materials required for therapeutic biological drugs are very similar to chemical drugs. However, the documents needed for the pharmaceutical research materials are much more detailed, including specific details on the sourcing, collection and quality control of raw materials (tissue samples, blood plasma, etc) used in production and research information about the formula and quality standards for the supplements. Pharmacology and toxicology research materials and clinical research materials required are very similar to chemical drugs.
Preventive Biological Drugs:
Preventative biological drugs require very similar documents to therapeutic biological drugs. More emphasis is placed on specifying details on the cellular stroma used for production, including cell bank information and cultures used. Other details include research on technical parameters to optimize the production process with inoculation, culture conditions, fermentation conditions, and removal of potentially toxic materials.
Traditional Chinese Medicine:
Summary materials are again similar to the other drug classifications, with information on the drug name, discovery and GMP certification. For pharmaceutical research materials, information is needed on the specifics of the raw herbs, including the source, growing characteristics, and culture method. Pharmacological, toxicological, and clinical research materials are similar to the other drug registrations, with data on long-term toxicology and clinical research protocols.
Technical Review Guidance for Registration Documents :
In order to help the applicant better understand the requirements for each of the application documents and clarify the technical review process, the SFDA issued 16 sets of technical guidelines on March 18, 2005 . Topics covered include guidance on research of impurities for chemical drugs, drug preparation production for chemical drugs, and bio-statistics for chemical and biological drugs.
New Drug Registration Process :
The first step in this process is to submit an application to the SFDA for a clinical trial permit (CTP). The SFDA will conduct a preliminary review of these documents and then transfer the dossier to the Center for Drug Evaluation (CDE). Experts in pharmaceuticals, pharmacological, and clinical areas will run a technical review, while sample testing will also take place in parallel. The CDE will issue a formal notice if the applicant needs to provide any additional information, allowing a 4-month period to gather and submit this information to the CDE. This entire first step usually takes the SFDA at least 125 working days. The second step involves submitting a clinical report and other relevant dossiers to obtain an import license. The process itself is basically the same as the first step. This second step will take a minimum of 145 days.
The SFDA must follow this timeline for each step of the new drug registration process. In addition, the application process is now tracked electronically and applicants can check their progress on the SFDA or CDE website. This electronic tracking system pressures the SFDA to comply with the specified timeline. Experts at the CDE receive a deadline for each task and any delay in the completion of the task will be recorded on the internal computer system. Because the SFDA does not want a poor annual performance evaluation, the tracking system forces them to complete more cases within the prescribed timeline. However, an application dossier rarely passes through the CDE in one step as most applications require a supplement notice. If the application documents are prepared in accordance with the regulations and technical guidance, the CDE’s questions in the supplement notice will be somewhat easier for the applicant to answer.
OTC New Drug Registration Process :
In certain situations, one can apply directly for an OTC drug registration for a new drug. Some examples include new OTC drugs where a national specification and testing method have already been established, or the new OTC combination drugs consists of ingredients already on the approved OTC list. Except for the drug insert and package design, all other technical dossiers for OTC new drug applications are the same as for prescription drugs. The review process is also the same as for prescription drugs. After registration approval, the new drug can be sold as an OTC product on the market.
DRUG PRICING REGULATIONS
In China, the central and local governments have a vested interest in keeping drug costs down because they bear the burden for the most widely used drugs. The Chinese government pays for almost all of the drugs on the National Medical Insurance Drug List. In order to make drugs more affordable to the Chinese public, the government has introduced several drug price caps. Drug prices are regulated by the National Development and Reform Commission (NDRC) and the local provincial Price Bureau. Between 1998 and 2005, the NDRC issued seventeen price cuts. One of the more recent drug price reductions in May 2006 involved price cuts for anti-cancer, antibiotic, and Western generic drugs. Current regulations prohibit hospitals from charging more than 15% over their purchase price. However, doctors add to this with their own markup of 20-40%. The government has declared it will enforce the 15% cap as the total that health care providers may legally assess. As a safeguard to this policy, another new regulation announced at the same time requires manufacturers to print drugs’ suggested retail prices on their packaging.
Good Clinical Practice (GCP)
Since many drugs require clinical trials in China, following Good Clinical Practice (GCP) regulations is crucial. Complying with GCP includes receiving IRB approval and maintaining quality assurance. Clinical trials can only be conducted in China after obtaining approval in paper from the SFDA, and are only permitted with doctors and hospitals that have been “approved” by the government. As of March 1, 2005, clinical trials in China cannot be conducted in non-certified clinical research centers.
Good Manufacturing Practice (GMP)
In 1998, the SFDA introduced the Good Manufacturing Practice (GMP) Certificate in order to promote quality and safety of pharmaceutical production. However, the certification was optional and occurrences of medical accidents and legal issues continued to arise due to poor manufacturing practices. Since China announced the Drug Good Manufacturing Practice (revision) on July 2004, at least in theory, all drug manufacturing plants must be GMP compliant. Following the July 2004 announcement, the SFDA issued another notice in October 2004 which revealed future GMP requirements for IVD reagents, medicinal gases, and Chinese crude drugs. Manufacturers of IVD reagents (which are administered as drugs) will need to meet GMP standards by January 1, 2006. The SFDA also formulated and issued GMP standards for drug excipients in July 2006. Beginning January 1, 2007, medicinal gas manufacturers will require GMP certification. In addition, producers of cut crude drugs for TCM will need to obtain GMP certification by January 1, 2008. The SFDA will force any manufacturers to stop production if they fail to meet GMP standards by their respective deadline. Foreign manufacturers should note, however, that Chinese GMP is not equivalent to US FDA GMP.
The SFDA has also conducted many unannounced “flying inspections” to enforce GMP standards at all drug manufacturing plants. “Flying inspections” were first announced in July 2005 with the issuance of the regulation entitled Drug GMP Flying Inspection Regulation. As these inspections are unannounced, the SFDA can get a more objective view of manufacturing quality at drug manufacturing plants since manufacturers do not have time to prepare. In fact, GMP certification has been revoked for some drug manufacturers while other drug manufacturers were asked to stop production until they were able to rectify certain problems. Because of the success of these unannounced inspections, the SFDA has been heavily promoting the inspections at all provincial-level SFDA branches.
China’s greatly expanding pharmaceutical markets has opened the doors to other opportunities for drug companies, such as research and development and clinical trials. The greatest incentive for these opportunities is the enormous potential for cost-savings with decreased costs on labor and facilities. China has also worked on increasing GMP standards in more facilities and promoting more stringent IP protection (especially as a WTO member) to attract foreign investment.
R&D in China has become very popular for many large pharmaceutical companies such as Pfizer, GlaxoSmithKline, Roche, and Johnson & Johnson. Pfizer has been especially active, setting up a large R&D center in Shanghai and working with the local community to create a more knowledge-based drug industry as opposed to simply manufacturing drugs in China. In fact, Pfizer has already invested over $500 million in China overall with various R&D centers and manufacturing sites.
Drug clinical trials are also growing greatly in China. Roche, for example, is recruiting patients to study the safety and efficacy of their drug Actemra for patients with active rheumatoid arthritis (clinicaltrials.gov). Eli Lilly is investigating the effect of a gemcitabine-paclitaxel combination to treat metastatic breast cancer (clinicaltrials.gov). Lower fees to hospitals, cheaper costs for investigators, and an abundance of potential patients have made China’s clinical trials markets expand greatly.
With entrance to the WTO, distribution channels have also opened up. Today, foreign manufacturers and other third parties that do not have manufacturing sites in China can now set up their own (fully owned) distribution companies there.
In short, China has grown immensely, expanding its pharmaceutical markets and developing its knowledge base. However, China is a unique market with each region having its own distinct, local infrastructure. Strategies and regulatory procedures employed in other countries will not always work when doing business in China. There are also significant challenges within the Chinese pharmaceutical market, including hospital sector problems, procurement policies and intellectual property infringement. Any company looking to invest in China should be aware of the local regulations, making sure to set up a clear strategy catered for their product.