Changing Roles - China's far-reaching presence in the manufacture and supply of active pharmaceutical ingredients (APIs) around the world has long been known. However, with the implementation of the Generic Drug User Fee Act (GDUFA) and the Falsified Medicines Directive (FMD), the scope of that role in regulated markets has been better quantified. As global regulations increase, China has also been adapting its internal regulations to better match those of the highly regulated markets it supplies.

Along with providing substantial manufacturing capacity for exported products, China's large and growing local market continues to entice companies seeking to import their products; though entering the Chinese market can be difficult.

European and US Market Presence

Both GDUFA and FMD require manufacturers to identify their activities for regulated markets, albeit in different ways. Under GDUFA, foreign and domestic facilities are required to register their activities with the US Food and Drug Administration. As of mid-April, 165 sites in China had self-identified as API manufacturers for 2014. Comparatively, under the FMD, the European Commission reported that 438 sites in China were supplying the EU with API as of late 2013. This positions China as second only to India, which was listed with 496.

According to the FMD, companies obtaining APIs from China and other countries outside the EU must procure written confirmation (WC) from the manufacturer stating that the API has been manufactured under current good manufacturing practice (cGMP) standards equivalent to those of the EU. These WCs are issued by the designated local regulatory authority, with the China Food and Drug Administration (CFDA) as the issuing authority in China.

These regulatory changes demand not only more time for companies to file with respective authorities but also additional investments. Under GDUFA, companies are responsible for paying fees for facilities, as well as drug master files (DMFs) that have been referenced in abbreviated new drug applications since GDUFA was implemented on Oct. 1, 2012. As of mid-April 10% of the US DMFs available for reference were held by Chinese corporate groups (Fig. 3). The costs related to GDUFA are being handled in different ways; some companies choose to pay the fees themselves and others build in the fee payment as part of supply arrangements, thereby affecting material costs.

Domestic Market

While API sourcing from China continues to be a major trend, an increasing number of companies are looking to supply their products into China.

Gaining market access can be complicated for foreign companies. China requires domestic clinical trials to be done as part of the approval process for new drugs, sometimes adding substantially to the approval timeline for finished dose products. For companies that achieve success, a market with 1.3 billion people and a growing middle class awaits.

In an effort to penetrate this market, companies are revamping their strategies for China. A number of Western companies have entered into joint ventures (JV) with Chinese manufacturers, either supplying API or technical expertise to capitalize on a local presence and domestic brand recognition.

Following several well-publicized JV terminations, companies are now developing different strategies. For example, recently Boehringer-Ingelheim (BI) announced plans to open a contract manufacturing plant with partner Zhangjiang Biotech & Pharmaceutical Base Development Co., giving BI further access in China. The plant will produce both Chinese- and foreign-developed biotech drugs for the local market.

Companies wishing to sell their APIs into China must have a valid import license for their products, which is good for 5 years. The majority of Chinese import registrations (CIRs) are held by corporate groups in the top five EU markets (France, Germany, Italy, Spain, United Kingdom) (Fig. 1). The largest single-country supplier is Japan, with 31 companies holding 174 import registrations for 102 products. India follows with 38 companies holding 158 registrations for 30 products. Because of the regulatory aspects and expense companies can face when selling into China, the majority of CIR holders are Big Pharma or established companies, as assessed by Thomson Reuters (Fig. 2). While these companies have experience navigating market complexities, the proportion of potential future and local companies holding CIRs has also increased, further illustrating the attraction of the Chinese market.

Looking Forward

For several years, environmental health and safety regulations have become increasingly more stringent for producers in China as manufacturing practices are scrutinized worldwide. These additional measures and increasing wages have escalated the cost of doing business in China. These increases have led to some companies relocating or scaling back manufacturing activities, sometimes ceasing production entirely.

China has long been known as a lower-cost sourcing destination for large-volume commodity products. To continue to compete globally, Chinese manufacturers will need to continue to place additional focus on developing efficient processes for specialized manufacturing as the number of products requiring cytotoxic, biologic or high-potency capabilities continues upward. To this point, the Chinese government has pledged substantial monetary support to develop domestic manufacturing of these products.

In accessing the Chinese market, companies will need to find ways to leverage their strengths through creative deal-making and innovative technologies. Additionally, price containment will continue to be emphasized in an effort to decrease health-care expenses for China's large population. Despite rising costs, we expect China will continue to be a substantial supplier of APIs and an increasing finished-dose presence in regulated markets.