As if they were selling coal to Newcastle, foreign suppliers of active pharmaceutical ingredients are slowly starting to find business in China, traditionally an exporter of low-cost APIs. The country is a long way from being a significant market, but non-Chinese firms see opportunity in some niches.
Taiwan’s ScinoPharm struck an agreement in May to supply APIs to Lee’s Pharmaceutical, a Hong Kong-based generic drug firm that manufactures in China. The APIs that ScinoPharm will supply to Lee’s, for treating glaucoma and thrombosis, present “extremely high technical entry barriers in process development and manufacturing,” ScinoPharm said at the time.
ScinoPharm opened an API plant near Shanghai last December, but most orders have been from foreign buyers. In fact, ScinoPharm had no sales in China a few years ago, says Jo Shen, the firm’s recently retired chief executive officer. Now, several Chinese customers are discussing projects with the company involving the launch of drugs in China near the end of the decade.
For the first time, Italy’s Fabbrica Italiana Sintetici (FIS) rented a booth this year at CPhI China, a drug ingredients trade fair that takes place annually in Shanghai. “We used to treat China as a source of intermediates,” says Giuliano Perfetti, FIS’s head of sales, marketing, and business development. “Now we see it as an emerging market.”
FIS, Italy’s largest custom producer of APIs, has traditionally focused on Europe, Perfetti notes. In China, the firm is targeting manufacturers of generic drugs that export internationally. “We are a good match for those companies that meet or even exceed Good Manufacturing Practices,” he says, referring to the set of standards that drug manufacturers must adhere to in Europe, the U.S., and other highly regulated markets.
Foreign firms have an opportunity in China to supply APIs that have just lost, or are about to lose, patent protection, says James Liang, director of sales and marketing at Zhejiang Cheng Yi Pharmaceutical, a Chinese API exporter. “Most Chinese formulators will use a local material when feasible,” he says. But in some cases, the Chinese API may not be acceptable because of the presence of impurities or problems with crystallization.
One reason foreign firms are starting to see opportunity in China is that Chinese regulators are tightening their oversight of the drug industry, explains David Mei, manager of product development at Zhejiang Jiuzhou Pharmaceutical, an API producer based in Taizhou, China.
Until recently, Jiuzhou exported its entire output to foreign buyers. Nowadays, Chinese customers account for roughly 15% of turnover, even though the firm is sometimes not the cheapest supplier. “The China Food & Drug Administration has become quite demanding in terms of quality and documentation,” Mei says. Jiuzhou’s experience with foreign regulations will help it meet China’s strengthened ones, he adds.
Still, some foreign companies perceive China as a mixed opportunity because of its complex regulations. Managers at Hovione, a Portuguese API manufacturer, are particularly familiar with China: The firm operates manufacturing facilities in Taizhou and Macau. Securing a Chinese import license is both costly and time-consuming, observes the firm’s CEO, Guy Villax, discouraging the sale of foreign-made APIs.
For most API manufacturers, China will continue to be more of a competitive threat than an opportunity. But as the Chinese drug industry grows in size and sophistication, some foreign companies will find that they have room to maneuver.