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Pressure Rises On Chinese Drug Firms

Competition and stricter production standards challenge China’s pharmaceutical chemical makers

by Jean-François Tremblay
July 16, 2012 | A version of this story appeared in Volume 90, Issue 29

Credit: Jean-François Tremblay/C&EN
Chinese generic drug firms are investing in R&D to develop new products faster. Shown here, the new kilolab of HEC Pharm in Dongguan.
The kilolab of HEC Pharm, a producer of generic drug ingredients based in Dongguan, China.
Credit: Jean-François Tremblay/C&EN
Chinese generic drug firms are investing in R&D to develop new products faster. Shown here, the new kilolab of HEC Pharm in Dongguan.

At the latest edition of the trade fair CPhI China, local exhibitors described China as a country where it’s becoming difficult to make money by producing pharmaceutical ingredients. The enforcement of manufacturing and environmental standards is squeezing local companies, but it’s also opening new opportunities, particularly for foreign firms.

A stroll through the vast halls of CPhI China at the Shanghai New International Expo Centre in Pudong last month was an opportunity to take the pulse of China’s pharmaceutical ingredients industry. Most of the exhibitors at CPhI China were Chinese companies. Attracting 1,700 exhibitors and nearly 30,000 visitors, the Chinese version of the pharmaceutical trade show was nearly as big as the flagship CPhI Worldwide exhibition that takes place every fall in Europe.

One thing that’s clear is that small local companies are under the gun. “Smaller manufacturers are leaving the industry,” said Tyler Tai Zhuang, a manager of international marketing at HEC Pharm, a large producer of active pharmaceutical ingredients (APIs) based in Dongguan, Guangdong province. Confronted by stricter enforcement of environmental standards, smaller Chinese firms can neither afford to build their own waste-processing facilities nor hire a contractor to take care of the problem, he said.

Production of pharmaceutical ingredients is still shifting to China from Europe, where costs remain higher, Zhuang said. But China is plagued with overcapacity. “For some types of pharmaceutical ingredients, particularly fermented ones, China’s total production capacity is several times higher than total world demand,” Zhuang noted.

Other problems loom as well. “It will be difficult over the next two years for smaller companies,” observed Wastom Wu, chief executive officer of Synthetics China, a producer of APIs based in Taixing, Jiangsu province. The erosion in the value of the euro against the Chinese yuan has forced Chinese firms to accept lower prices from European buyers, he said.

Meanwhile, competition in China has become fierce among companies focused on APIs that have been off patent for many years. To differentiate themselves, the companies must develop ingredients that have just lost patent protection, he said.

Another challenge, according to Wu, is that Chinese authorities are increasingly reluctant to issue production licenses. “Companies are merging or acquiring others specifically to obtain access to existing pharmaceutical ingredient production licenses,” he observed.

Although difficult to clear, all of these hurdles are ultimately strengthening the Chinese pharmaceutical ingredients industry, Wu added. Local firms that have the financial means are beefing up their R&D capabilities, he said, and investing in their manufacturing facilities. “Chinese companies used to focus on cost, but now the focus is on technology,” he said.

U.S. glass producer Corning says it is benefiting from the more difficult business environment. Present at CPhI China to promote the company’s flow reactors, Global Business Director Yi Jiang said the technology is being received warmly, thanks to the heightened regulatory environment. “China’s current five-year plan encourages more efficient, cleaner production,” he said. “This drives technology upgrades.”

In addition, Jiang said, Corning’s reactors help companies stand out in the increasingly competitive Chinese marketplace. “Implementing our flow process reactors can help them demonstrate their ability to manage complex, high-risk reactions and secure new contracts.”

The same trends that are threatening Chinese ingredient producers are sources of opportunity for the Taiwanese pharmaceutical ingredients maker ScinoPharm, said President Jo Shen.

So far, ScinoPharm does not have customers in China, even though the company recently began production at a new facility in Changshu, Jiangsu province. Conforming to developed country standards, ScinoPharm built the plant to take advantage of China’s lower costs to supply clients elsewhere in the world, not to gain access to the local market, she said.

But regulatory changes in China present an opening for ScinoPharm in that country, Shen said. “China has adopted new Good Manufacturing Practices (GMP) standards that are far stricter. Chinese companies will have to invest in upgrades to meet these standards, and that will put us on an equal footing, costwise, in China.”

Indeed, the new GMP requirements are so demanding that some Chinese firms are opting to buy manufacturing facilities in Europe in order to meet them, said Jack H. Ye, managing director of Hangzhou Viwa, a producer of pharmaceutical ingredients based in Zhejiang province. “With the economic crisis in Europe, we can get a good price on some great assets,” he said.

Viwa is investing in an existing facility in Switzerland that will export oncology drugs to China. “The new Chinese manufacturing standards are similar to those in the U.S. and Europe,” he said. “Quality has become so important in China that imports are viewed favorably.”



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