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 Given the 10 years or more it typically takes to bring a new
medicine to market, original "Made in China" treatments won't arrive
overnight, but multinationals are already encountering more
competition from local generic drugs that look set for a quantum
leap in quality.
The stakes are high. China is the world's second biggest drugs
market behind the United States, and fast food, smoking and
pollution have fueled a rise in cancers and chronic heart and lung
diseases.
The country also has more diabetics than any other in the world,
with numbers expected to hit 151 million by 2040 from 110 million
today, according to the International Diabetes Federation.
That has made China a sweet spot for Denmark's Novo Nordisk; the
world's biggest insulin producer has mined a rich seam in the
country since opening production facilities here in 1995.
By 2010, it dominated 63 percent of China's insulin market. But it
has recently been losing ground to local competitors cheered on by
Beijing.
"China is going to be tough for us for the next couple of years,"
said Chief Science Officer Mads Krogsgaard Thomsen. "Right now, the
country is very focused on building domestic production."
Local rivals are selling both cut-price basic insulin and
sophisticated modern versions, including a biosimilar copy of
Sanofi's Lantus made by Chinese biotech specialist Gan & Lee
Pharmaceuticals.
END OF BRANDED GENERICS?
Greater local competition is also evident in other areas, helping
the top 10 Chinese drugmakers grow sales 12 percent on average this
year, according to IMS Consulting - twice the rate of
multinationals, which suffered a setback from a bribery scandal at
GlaxoSmithKline two years ago.
GSK itself has seen its drug sales slump.
Increasing local competition is part of a structural upheaval in
China's hospital-dominated prescription drug market. Selling drugs
to patients at a hefty mark-up - especially off-patent Western
"branded generics" - often accounts for 40-50 percent of Chinese
hospitals' revenues. But the authorities are now pushing a policy of
zero mark-ups, initially in smaller county hospitals.
"Branded generics are something that exist today, but the need for
them in 10 years time is not going to be there," said Luke Miels,
AstraZeneca's global portfolio head.
That means foreign firms will be more reliant on new, patented
medicines, although the scale of demand for such expensive products
is uncertain in a country with only basic health insurance cover.
At the other end of the spectrum, multinationals aim to build up
volume, often in partnership with local players, in the big markets
outside China's top cities, where distribution costs are high and
prices low.
"It's the right thing to do, even if profit margins shrink," said
the head of one big multinational.
REGULATOR REFORM
Pivotal to the transformation of the market is the China Food and
Drug Administration, led by reformist boss Bi Jingquan since
January.
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The watchdog has promised to speed up approval of innovative new
drugs, which can take 5-7 years, while cracking down on substandard
local generics.
"This creates lots of opportunities for local Chinese companies that
have a strong focus on innovation," said a spokesman for China's
Fosun Pharma, which sees itself among the winners.
It is not alone. A cluster of drug research labs in eastern Shanghai
highlights the promise of China's life sciences sector. The area
brings together multinational and local firms, alongside contract
research businesses and small biotech operations.
Among the latter is Hua Medicine, led by Chinese-born,
Western-educated Chief Executive Li Chen, who used to run Roche's
China R&D center. Now he is developing a novel diabetes treatment,
licensed from Roche, while working on Hua's own promising leads.
Another standard-bearer for Chinese biotech is Beijing-based cancer
specialist BeiGene, which last month announced plans for a $100
million initial public offering on Nasdaq.
At a time when China's academic researchers have grabbed headlines
by editing the genes of human embryos, such start-ups highlight the
commercial potential of China's biotech know-how.
The history of failure in drug development suggests they won't have
an easy ride, but GSK's China R&D head Min Li, a returnee from
America, believes "there is a real chance for China to leap ahead in
life sciences".
Dennis Gillings, executive chairman of leading contract research
organization Quintiles, said the number of Chinese-developed drugs
in the pipeline was rising fast.
"It's probably been taking everyone a little by surprise, the sheer
scale of that," he said. "As we hit the next decade in the 2020s,
I'd be very surprised if there wasn't at least a top 20, if not top
10, global pharma player that was headquartered in China."
(Reporting by Ben Hirschler and Adam Jourdan; Editing by Will
Waterman)
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