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Most Chinese biopharmaceuticals are relatively small and there are not enough of them to sustain a robust services sector.
For years, China's domestic biopharmaceutical companies have completed most steps in the biopharmaceutical value chain in-house. The domestic industry was simply not large enough to support a substantive services segment. This situation is changing as China's pharmaceutical services sector expands to meet the emerging needs of the biopharmaceutical industry. As the country's domestic industry grows, it demands higher quality and more cost-effective external services from both home and abroad.
China's domestic companies have broad service needs, compared with the larger multinational organizations established there, which typically have greater in-house resources and talent. Most domestic biopharmaceuticals are small-scale companies and are attempting to broaden their R&D-to-production value chain. This requires access to specialized capabilities.
Eliza Yibing Zhou
Creating the in-house expertise required for the broad array of services essential for a successful biopharmaceutical company is unrealistic for most Chinese companies (see Table 1). Also, because China's services industry is at an early stage and the critical mass of customers required for such new services is not quite there.
Table 1. Biopharmaceutical services required in China
Today, most Chinese biopharmaceutical companies have realized the importance of external services and are looking for those that meet their needs and standards. This issue was discussed in detail with CEOs and senior executives at five Chinese biopharmaceutical companies: 3S Bio, Inc., Shanghai Sunway Biotech, Beijing Four Rings Biopharma, Beijing Tri-Prime Gene, and Shenzhen Interlong Biotech Co.
Most Chinese biopharmaceuticals are relatively small and there are not enough of them to sustain a robust services sector. According to Dusheng Cheng, general manager at Beijing Four Rings Biopharma, "Most Chinese biopharmas are small and product distribution is relatively scattered, because most companies have only a few strong-selling products." Cheng says that additional funding would be required to enable companies to complete the entire pharmaceutical process value chain. More importantly, he believes, "Completing the process value chain [internally] would be a waste of capital, manpower, and material. Some of the time-consuming, investment-demanding processes would become a big burden to companies [if they were brought in-house]." More and more Chinese biopharmaceutical companies are seeking external service providers to help complete the whole process.
Yongqing Cheng, general manager at Beijing Tri-Prime agrees, "Facing harsh competition in the domestic market, Chinese biopharmas certainly wish to invest their limited resources in ways that will allow them to be most competitive. Therefore, they really need external services."
Analytical testing, toxicology, and animal test services are among the services that have a great demand in China today. Four Rings Biopharma's Cheng believes that these services are critical because, "Chinese biopharmas find these assays are more strictly evaluated by the State Food and Drug Administration (SFDA)."
Dr. Jing Lou, CEO of 3S Bio, Inc., notes that his company has already contracted out analytical testing such as carbohydrate structure analysis of glycoproteins from mammalian cell-expressed process. Dr. Lou believes that such external services can help ensure in vivo activity in certain glycoproteins such as erythropoietin (EPO) and thrombopoietin (TPO).
Other services in demand include clinical research services, technology transfer, and cell line construction and development. According to Dusheng Cheng, though, "The companies providing these services are still early stage and large-scale professional service companies are not available." Moreover, quality management, training, and drug distribution services (contract sales) are sparse in China. Services that may be required in the near future, but are not in high demand yet, include contract manufacturing, formulation, and stability studies, which today are needed at relatively few companies.
Dr. HongLi Liu, MD, president assistant, at Shanghai Sunway Biotech Co., Ltd., also believes that despite a relatively rapid growth in the industry, "the expansion of China's biotech industry still relies on the service providers...from Europe and the US to a great extent." According to Liu, these imported services include technology transfer, capital market, and business marketing services. These are exactly the services that are needed urgently for domestic biopharmas and these are now readily available in Europe and the US. In particular, Liu believes commercial services are necessary as new drug marketing usually needs very strong market positioning. "In China, however, marketing talents are in short supply because only a few novel drugs have been marketed," he says.
Dr. Yan Wang, vice general manager, Shenzhen Interlong Biotech Co., Ltd., in Shenzhen also believes that more and more Chinese biopharmaceuticals now require external services and support. She finds that apart from lyophilization and data management services, where China's biomanufacturers find current services adequate, most other services are needed in China. According to Wang, "In particular, stability study and cell line construction and development services are not available in China yet." Other services required for addressing bottlenecks include: animal testing, formulation, technology transfer, cell line development, facility design, quality management, and marketing and distribution services.
Many biopharmaceuticals in China would like to have more services in-house to help complete their process value chain. However, China's general manufacturing orientation makes it somewhat unique. Beijing Four Ring's Cheng explains, "Most Chinese biopharmas do their quality control, manufacturing, and marketing in-house today because these are production-based enterprises. Except for some government-supported companies, most lack R&D capabilities and thus expect to shorten the production-to-marketing period."
Another reason some Chinese biopharmaceuticals would like to move more services in-house, according to Beijing Tri-Prime's general manager Cheng, is the quality of services currently available, "The market has not been able to provide qualified services with a good performance–price ratio," he says.
Many biopharmaceuticals in China strongly prefer to keep their R&D work in-house, including pilot experiments and stability studies, due to intellectual property (IP) sensitivity. Wang believes that "Chinese biopharmas are basically not willing to communicate and collaborate with outsiders, [out of concern for IP and trade secrets]. This can be seen in some of China's marketed genetically engineered products. These are mainly based on prokaryotic and yeast expression because most cell line facilities, systems, and bioreactors must be imported. Hepatitis B vaccines, for example, can be produced from either yeast or CHO cells. In China, cell culture techniques lag behind those in developed countries, and hepatitis B vaccines are based on yeast expression."
Another reason biopharmaceuticals in China tend to perform more work in-house is financial. Funding needed to outsource to external service providers is often not available. According to Shanghai Sunway's Dr. Liu, "Due to the [relatively poor] capital markets in China, most work on new drugs including preclinical trials, production, clinical trials, and application must be completed in-house. Early R&D work may be contracted out. However, because domestic service providers are still growing and their professional level and specialization tend to be lower, Chinese biopharmaceuticals prefer to complete key R&D work in-house."
External services may help bring China rapidly forward by addressing the bottlenecks caused by the current lack of R&D ability, innovation, and solid marketing channels.
Beijing Tri-Prime's Cheng agrees, "New product R&D and new technology platform construction services are key in China today. Other services of interest include data management and CRO services."
On the other hand, the big bottlenecks to the success of biopharmaceuticals in China, according to Wang, do not relate to the availability of outside service. These involve "the development of domestic innovative technologies with strong IP rights and a promising market perspective." Chinese companies prefer to avoid using external services at early stages because confidential technologies may be involved.
For the research-based innovative Chinese biopharmaceutical companies, such as 3S Bio and Shanghai Sunway, lack of effective capital support service poses a major challenge, because large investments are required to develop novel biopharmaceuticals. Shanghai Sunway's Dr. Liu says that the biggest obstacle is lack of funding due to limited venture capital (VC) services in China, "Domestic companies are able to complete new biopharmaceutical R&D...However, for small biotechs, insufficient VC support at early R&D stages, and a lack of link-up and transfer channels between VC's and long-term investors has placed hurdles in front of domestic biotech development. For larger companies, tech transfer is the key [bottleneck] that inhibits development."
Dr. Lou of 3S Bio points out, "China certainly has a lot of money, but not for biopharmaceutical and biotech research companies, which can't price their quality products at a reasonable level [due to price controls]. Therefore, additional management services may be required."
Today, there is a limited, but growing number of service providers in China (see Table 2). Services in China began with contract research organization (CRO) services and low-risk discovery chemistry (lead optimization that might lead to claims on IP were typically done in the US or EU).
Table 2. Some biopharmaceutical nonclinical service providers in China
Early entrants, such as WuXi PharmaTech, have grown, and this has led to many new entrants into the services sector. Several of these companies are managed by "returnees." These additional services include animal pharmacology, good laboratory practice (GLP) toxicology services, and various lead optimization service providers. However, these new entrants may not be achieving the level of quality expected from a major international market participant.
GLP is a relatively new concept in China. It was only in January 2007 that all new drug safety evaluations were required to be conducted in GLP-accredited laboratories. To date, only 23 laboratories in China have been granted GLP certifications by the SFDA. These organizations are a part of state-owned organizations. Their levels of service differ in scope and technical competence. Efforts are under way to bring facilities to GLP standards. However, currently, few laboratories have passed the Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC) standards. These include Nanjing Laboratory-Next Century, Inc., National Research Center for New Drug Safety Evaluation (Shenyang), and AbMax Biotechnology Co., Ltd.
Also, there are no board-certified slide-reading pathologists in China. Many service providers also have limited real-world experience. For example, a US CRO might start 150 studies per month, whereas its Chinese GLP preclinical counterpart may be conducting 50 per year. There are also historical holdups. Many Chinese GLP facilities have experience in traditional chinese medicine (TCM) but have limited experience with new chemical entities (NCEs) or new biologics entities (NBEs).
External service suppliers can offer a more efficient use of scarce resources and talent, which China's biopharmaceutical industry currently lacks. The availability of quality services can optimize the use of these resources, and may help speed China's industrial development.
Eric Langer is president of BioPlan Associates, Rockville, MD, 301.921.9074, firstname.lastname@example.org
Eliza Yibing Zhou is project director for research programs on China and India, email@example.com