Of course, the domestic industry still has a long way to go. China has 500 biotech enterprises, but a 15-year gap remains between the development of China's biopharmaceutical industry and that of developed countries. In 2006, 900 Chinese pharmaceutical companies stopped production as a result of severe competition, price pressures, and the implementation of regulatory and quality requirements. Forty percent of Chinese pharmaceutical companies claimed losses in 2006, and 60% of pharmaceutical profits in China flowed to wholly foreign-owned or Sino-foreign joint ventures.

In spite of that, China seems to feel that its domestic industry is strong enough that the country can reduce incentives for foreign firms. China announced it would unify corporate tax rates for domestic and foreign companies in 2008. Until now, foreign companies have paid only 20%, compared to 33% that domestic companies pay.

At the same time, however, the government continues to pour money into developing the industry. China announced plans to build the largest protein therapeutics production base, for BaiAo Pharm to produce 200 million capsules and 30 million injectable doses annually of lumbrokinase products. The provincial government in Tianjin announced plans to build the largest flu vaccine production facility in North China.

This government investment seems to be supported by private sector activity. For example, the Huayi Group announced plans to invest $13 million in a pilot project to manufacture "Yishengtai" (rh-YST active peptide), a diabetes medicine developed in China. Shanghai Kehua Bio-engineering Co. Ltd. began exporting HIV test kits through the Clinton Foundation. And a new anti-dementia drug based on traditional Chinese medicine (TCM) was licensed by the Chinese SFDA. This is the first patent licensing to a foreign firm. Beijing SL Pharma received approval from the SFDA to conduct clinical trials of a new genetically engineered medicine, recombinant candida utilis uricase.

Capital activity also showed positive signs. The Chinese diagnostic producer Chemclin completed its first private fundraising round, garnering $5 million in June. Simcere Pharma acquired Shandong Simcere Medgenn Bio-Pharmaceutical Co., through a an acquisition of an additional 10% shares for $3.6 million in cash. Benda Pharmaceutical, Inc., the producer of Gendicine, the world's first commercialized gene therapy medicine for cancer, increased its ownership stake in Shenzhen SiBiono Genetech Corp.

Improving Scientific Basis

China's biopharmaceutical industry is also showing signs of strengthening its scientific underpinnings. A number of examples can be cited to support this:

• The Shanghai-based National Center for Drug Screening bolstered its new drug research by hiring top Roche and Pfizer scientists as members of its scientific advisory panel.
• The world's first Helicobacter pylori vaccine completed Phase 3 trials in China. Five patents were granted for the Chinese-owned IP used to develop the drug.
• A new bird flu vaccine virus was developed through collaborative research by Chinese and American scientists at US and Chinese centers for disease control. The virus was isolated from people infected with the H5N1 strain.
• On the manufacturing side, a Sino-Cuban collaborative project created China's first automated large-scale mammalian cell culture platform.

CHANGING REGULATORY CLIMATE

The regulatory climate in China, a major concern in the West, is also showing signs of improvement. This year, China's SFDA issued long-awaited regulations on drug registration that (1) intensified requirements for drug safety; (2) integrated supervision resources and clarified responsibilities; and (3) enhanced drug evaluation and approval standards. China announced a new five-year plan to tighten food and drug safety and to contain illegal activities in production and the sale of shoddy pharmaceuticals and foods.

To implement the new regulations, China established a four-level drug administration and inspection system involving 3,509 institutions. The SFDA also announced plans to complete an express examination and approval process for new drugs, to encourage Chinese innovative new drug R&D.