Prescription for Global Pharma Firms: Search for More Opportunity in China

“China is growing very, very fast, and you can see where the market is going many years into the future,” said John Sun, global program team director at Novartis, the multinational pharmaceutical firm. “No company will dare to overlook China, although the journey will not be smooth.” Sun made his comments at the tenth annual conference of the Sino-American Pharmaceutical Professionals Association of Greater Philadelphia, held recently at Villanova University. According to Sun and other conference participants, China represents a unique opportunity for multinationals to tap into a huge pharmaceutical market that will continue to expand rapidly. 

John Hubbard, head of worldwide development operations at Pfizer, noted during the conference that 48% of China’s 1.3 billion people still live in the countryside or small towns, but that an additional 350 million Chinese are expected to move into larger cities by 2025. That’s more people than currently live in the entire United States. But it doesn't end there. By 2030, a total of one billion Chinese will be living in China’s cities, and a total of 221 different Chinese cities will each have more than one million inhabitants — compared with just 35 cities of that size in all of Europe. According to a recent survey, there are already 20,291 hospitals in China, including 13,364 general hospitals as well as 2,728 hospitals that practice traditional Chinese medicine.

As China urbanizes and grows wealthier, its population is demanding ever better and more sophisticated health care. In 2009, the Chinese government began a massive, three-year, US$123 billion investment initiative aimed at achieving several ambitious goals: accelerating the development and implementation of a medical insurance system for both the country's rural and urban populations; establishing an "essential medicine system" for the manufacture and distribution of critical drugs covered by medical insurance; improving "grassroots" medical services for less developed areas; promoting equality in basic health services, and reforming public hospitals to improve their quality. By 2015, “China is expected to become the world’s second-largest prescription drug market,” after only the U.S., said Hubbard.

Balancing the 'Iron Triangle'

“The Chinese government is making an effort to make health care more affordable,” noted Lawton R. Burns, a Wharton professor of health care management who spoke at the conference. “Its new health insurance schemes are designed to increase coverage and reduce prices” for consumers of pharmaceuticals. “As health insurance becomes more available, it will stimulate technology and R&D,” he added. According to Burns, China’s goal will be to balance all three components of the "iron triangle of health care": cost containment; higher quality care and increased patient access.

Some major pharma multinationals have been active in China for years. Over the past three decades, Pfizer, the world’s largest research-based biopharmaceutical company (US$67.4 billion in total sales in 2011 and some 100,000 employees in more than 150 countries), has emerged as the largest multinational in its sector operating in China. Pfizer has introduced more than 50 innovative drugs in China, and has eight plants covering a wide range of sectors in that country, including biopharma, nutrition, consumer health and animal health. From its base in Beijing, Pfizer operates in nearly every city in China that has at least one million people, and runs two large R&D centers in China — one in Shanghai (built in 2005) and another in Wuhan (2010). The firm has also established an extensive network of external collaborations, including strategic partnerships and collaborative agreements with nine Chinese universities; multiple partnerships at Fudan University, based in Shanghai; and several contract research agreements.

Pfizer and other pharma firms hope to take full advantage of the ongoing demographic changes in China that have altered the nature of the products that Chinese consumers need most. As China’s health care sector has improved in quality, its population has also been aging. In 1955, China’s life expectancy at birth was only 40.8 years, but by 2005, it had increased to 71.5 years. Diseases such as obesity, hypertension, cardiovascular ailments and diabetes — more rare among younger patients — are becoming increasingly prevalent. In 1992, for example, only 14.6% of Chinese patients were diagnosed with obesity, but that rate increased to 21.8% of the population by 2002. Over the same period, the rate for cardiovascular disease increased from 31.4% to 50%. By 2006, there were some 160 million patients in China who suffered from hypertension, and the numbers are growing. China has one-third of the entire world’s total number of Alzheimer’s patients, while some 35 million Chinese suffered from dementia disorders of all types (not just Alzheimer’s) in 2010. The latter figure is expected to rise to 115 million by 2050.

When it comes to marketing and developing pharmaceuticals in China, foreign multinationals benefit from the country’s strong cultural roots in the sector, noted Hubbard. “China has a well established tradition of developing [modern] medicines from 'traditional' Chinese medicines,” he said. Chinese consumers also have a strong sense of loyalty to pharmaceutical brands, “which leads to brand growth even after loss of exclusivity,” Hubbard added.

Faster — and Cheaper — R&D

China isn’t just an increasingly appetizing market for big pharma firms. Over the past several years, more and more R&D centers in Western countries have been pursuing opportunities to engage in clinical trials in China, said Hubbard, because the cost of clinical trials continues to increase by more than 20% a year in more established regions like North America and Western Europe. “Conducting trials in developing countries [such as China and India] can reduce costs by more than 50%,” he noted.

Patient recruitment in developing markets can be “more than 100% faster compared to the U.S. and Western Europe,” Hubbard added. China, in particular,  offers pharma firms access to vast patient populations that have unmet medical needs, large urban hospitals, and investigators and clinical centers that are professionally certified by the State Food and Drug Administration (SFDA), the local equivalent of the U.S. FDA. Beyond that, the country offers significant potential for collaboration and partnerships in the drug-development process, he noted.

However, some participants at the conference lamented a significant barrier to jumping into China: In China, clinical trials can only be conducted in SFDA-certified clinical trial institutions. However, there are only 200 professional reviewers at the SFDA, compared with 2,034 reviewers at the U.S. FDA. The good news is that there are 2,156 SFDA-accredited trial sites in 295 hospitals located throughout China, Hubbard pointed out.

Hubbard said that China’s SFDA regulatory approval process also takes longer because SFDA “regulators are very cautious about making any mistake,” since they can be severely sanctioned if anyone dies in China as a result of consuming a drug that turns out to be dangerous. “If we can get [SFDA approval periods down] to three to six months, instead of [the current average of] six to 12 months, then we’ll see a lot more trials taking place in China,” said Hubbard. “The key to the future is getting more investigators.” About half of the clinical trials that take place in China are for its domestic market, and the other half are for multinationals’ global markets, he said.

Clinical review decisions made by the U.S. FDA are “much more transparent” than those made by China’s SFDA, explained Liang Zhao, currently senior clinical reviewer at the U.S. FDA’s Office of Clinical Pharmacology. “In China, the government is the government, and it can make the rules.” According to Song Li, chairman and CEO of Exton, Pa.-based Frontage Laboratories, a biopharma contract-research organization (CRO), “In the U.S., the FDA has a 100-year history and the rules are very clear. The SFDA is relatively new, and its rules are relatively new. But the SFDA is making a tremendous effort to adapt to international standards.” 

The two agencies  — SFDA and U.S. FDA —  are also communicating with each other more often, added Li, and “over the next five or ten years, you will see a lot of harmonization” in the way they operate. “The SFDA will become more and more similar to the U.S. FDA,” Li predicted. “Despite these challenges,” Hubbard said, “I am confident that openness to collaborate will solve a number of these problems.”

Overcoming Cultural Barriers

Some pharma executives at the conference noted that cultural awareness is a key to success for foreign companies operating in China’s pharma sector. “People say that it takes a very long time” to get started in China, said Frontage’s Li, “but we did it very quickly. You need to know the culture. You need to know who is at what level when you are meeting and you are shaking hands with people.”

Wim Vandenhouweele, executive director of Global Vaccines and Commercial Development at Merck, said his company provided him with a cultural awareness program when he went to China, “but it didn’t help me at all.” Rather than depend on training programs, the Belgian-born executive advises newcomers to China to “take your time. It took me six months to see what was working, and to become more sensitive. In the end, it’s about talking to people — about being open, learning and listening.”

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