Jane Wan is a freelance writer based in Singapore.

Jane Wan

In March 2012, Pfizer Japan, a subsidiary of Pfizer US, set up a Rare Disease Division with the objective of becoming a global leader in treating rare diseases. China's Beijing Genomics Institute (BGI) in the Yantian District of Shenzhen, formed BGI Japan in Kobe, in September 2011, to increase its range of partners and to conduct joint research with Japanese companies. Golden Biotechnology Corporation in Taipei, Taiwan, established a Tokyo-based subsidiary in April 2011 to push out its proprietary health supplements. And the list goes on. 

The well-established Japanese pharmaceutical market continues to attract extensive foreign interest and investment. Alan Thomas, director of business planning and analytics at IMS Japan K.K., says: "An increase in chronic disease, such as diabetes and cardiovascular related, and the number of treated patients within these diseases continues to see expanded access to pharmaceuticals. Additionally, an increase in specialty-related disease areas, such as oncology and osteoporosis, drives growth with increased use of biologics and specialty pharmaceuticals. With these emerging and expanding disease areas, the number of innovative treatment options available is also improving."  

Japan's stagnating economy and aging population have urged the government to reshape healthcare policies that favor the entry of foreign firms. The agency has taken steps to shorten the drug-approval process and facilitate easy access to better treatment options. The median drug approval has fallen from 22 to 15 months in the past two years; and the approval time for products under priority review has dropped from 15 to 9 months.  

The government is considering "a compassionate use" system that allows seriously ill patients to use drugs yet to be approved for use in Japan. This program is meant for patients who have not responded to standard treatments and where domestic options are unavailable. The government is also looking to allow health insurers to shoulder some of the costs incurred by patients under this system. Japan has spent time examining the sector's clinical trials and pricing as well, and under new initiatives, the increased acceptance and use of global clinical-trial data has reduced cost and sped timelines. The so-called "clinical triangle" comprising of China, Korea, and Japan, also helps to reduce development time in Japan because of the additional trial data available. In addition, the extension of Japan's "premium for development of new drugs and elimination of off-label use" is applicable to the National Health Insurance (NHI) price revisions established in April 2010. Under this system, manufacturers are encouraged to develop new drugs and provide additional information for existing ones when products are eligible for a lower NHI price revision. 

Recently, the government shifted its focus to generic drugs with the goal of increasing market share to 30% by 2013 in a bid to address to the country's overburdened healthcare system. To dispel the common public perception that generic drugs are inferior, generic drugs and their active ingredients are placed under rigorous quality control. Generic-drug manufacturers are required to supply all of the strengths and dosage forms of the branded version. The Ministry of Health, Labor, and Welfare (MHLW) also requires manufacturers to supply strengths of the same dosage form as those of the branded products, and that the generic versions be a perfect match to the branded products.  

Ranjith Gopinathan, program manager of life sciences and healthcare practice at Frost & Sullivan, adds, "Strongly backed by the government, the generics market is encouraged by initiatives such as relaxing registration procedures and providing incentives to doctors prescribing them over branded drugs." 

Interestingly, foreign presence has reshaped the business strategies of domestic players. Jamie Davies, head of pharmaceuticals and healthcare at Business Monitor International, says, "Typically, Japanese pharmaceutical companies are conservative in nature and focus primarily on the domestic market and have limited exposure in less developed states. However, the dual effect of patent expiries and reduced research productivity has forced them to increasingly look abroad for sales growth. As a result, several are looking to emerging markets to generate new growth." 

Domestic companies have started to forge strong links with international firms and foreign markets. All the leading Japanese firms derive around 40% of their revenue from overseas markets, mainly the US, although exposure to emerging markets is increasing, adds Davies. In October 2010, Takeda Pharmaceutical in Tokyo announced plans to form alliances with Indian companies to sell its patented drugs and to offer basic business services.  

The M&A quest has also gained momentum in Japan with Takeda's acquisition of Nycomed, based in Zurich, Switzerland, for $13.7 billion in September 2011. Takeda Farmacêutica Brasil has signed an agreement to acquire Multilab Indústria e Comércio de Produtos Farmacêuticos, based in Rio Grande do Sul, Brazil, by the end of the second quarter of 2012.  

Of course, there are exceptions. Recently, Eisai, based in Tokyo, has shifted its focus back to East Asia, citing the region's enormous potential, especially now that the Japanese market is becoming attractive again thanks to government initiatives. Likewise, Sawai Pharmaceutical in Osaka is concentrating on the Japanese market and exploring partnerships with larger pharmaceutical companies to expand its therapeutic range. 

Thomas adds, "From a portfolio perspective, Japanese pharmaceutical companies will put their focus on speciality pharma, oncology, and biological platforms. This acquisition activity will gain momentum as a strategy for market entry and portfolio expansion." Although domestic firms control 66% of the Japanese pharmaceutical market share, the market remains attractive to foreign big players for its lower risk and exposure compared with other markets. In fact, a Bloomberg source indicates that the prominent companies are doing quite well. Pfizer grew Japanese sales to $7.3 billion last year and GlaxoSmithKline figures were up by 28% in the same year. Large-scale companies are well-positioned due to their strong late-stage pipelines and aggressive launch objectives to continue to grow over the next two to three years. On the other hand, smaller-scale players with no presence in Japan may have to opt for out-licensing or partnering to maintain growth.  

Jane Wan is a freelancer writer based in Singapore

Articles

After a series of government reforms that are appealing to both domestic and foreign players, the Japanese pharmaceutical market is making a comeback.

Report from Japan

The Indian government has announced plans to exercise stricter control over drug pricing in its domestic pharmaceutical market. Based on the proposed policy, at least 400 essential drugs will come under the fold of the National List of Essential Medicines (NLEM), thereby increasing the government's current control of 20% to approximately 70%. The new pricing method is meant to replace the current Drug Price Policy Control (DPCO) 95, which stipulates that drugs recording company turnover of Rs1 Cr to Rs4 Cr (1 Crore = 10,000,000 million rupees), under various criteria, and products that held market share above a 50% in the category, are brought under price control. 

Under the system, 74 bulk drugs and 1577 of their formulations have come under government purview as a result. Industry players and bodies such as the World Health Organization (WHO) are not in favor of the proposed drug policy. WHO representatives commented in a statement that the government's proposed method of drawing drug data has failed to "take into account of discounts, rebates and bundling deals." The data collection has also failed to provide pricing transparency and led to national abnormalities whereby high volume drugs are priced higher in India compared with neighboring countries, such as Sri Lanka.  

WHO has also questioned the government's plan to base ceiling prices for products within individual therapeutic groups on the group's biggest seller. Initially, the Department of Pharmaceuticals released a draft policy to control pricing using market-based pricing of formulations. The ceiling price is to be determined on the basis of the weighted average price of the top three brands by value of a single ingredient formulation from the NLEM on a per standard dosage basis. However, this was considered ineffective to control NLEM drug prices. In turn, the country's Ministry of Health has recommended that the ceiling price on formulations be determined based on the weighted average price of the bottom three brands. 

According to various sources, the government is likely to face several challenges when it comes to the new policy's implementation. For example, price control may affect the manufacturing and supply of certain drugs. Ajay Kumar Sharma, practice head, pharma, healthcare practice for South Asia and Middle East of Frost and Sullivan, explains, "Some companies may stop production and some may exit certain markets.  Such a shortage will lead to the mushrooming of spurious drug manufacturers in the concerned areas." 

The government may also have to battle with the challenge of capturing complete market information to confirm the final list of essential drugs. Tejas Arur, senior sales manager of IMS India says, "The current information sources used in government report covers over 80% of all drugs in the market only. Moreover, many therapy areas untracked contain less than three brands, thus rendering the exercise with little relevance. There is also the issue of institutional sales and tender-based supply of drugs that the government may have to source directly from each institution." 

A cost-based pricing methodology may be implemented because of to the lack of robust data covering all 348 drugs in terms of size and price. This step may also lead to controlling prices in certain therapies or molecules where the government believes pricing is higher than what it should be due to insufficient competition, Arur says.     

Although large companies such as Pfizer welcome the idea of the government's initiative to link price control to a national list based on market demand, the challenge remains as to how the list can act as a basis for price control overall because the list consists mainly of single molecules with specific dosage forms. Kewal Handa, managing director of Pfizer Limited, cautions that the new drug price control may result in a semi-recession for India's pharmaceutical industry. The industry is already experiencing slow growth of 13% compared with the 20% growth of April-May 2011. "A high level of control over drug pricing may result in the decline of quality and innovation," he adds. 

Handa believes that the government should focus on putting in place non-price control initiatives to address the issue of accessibility. "High drug prices will limit or result in non-availability of affordable healthcare. Making healthcare available to all is not possible by reducing drug prices with no drastic changes to improve infrastructure and government's central procurement system of drugs backed by a new and effective distribution model," he says. 

The emphasis should also be put on encouraging foreign investments and enhancing the market position of domestic players, says Handa. According to Handa, growth opportunities in areas such as research and development, manufacturing and business processing contribute significantly to the domestic industry as they are valued at $70 billion.  

Already, domestic players are feeling the heat of the proposed price-control policy. Some local firms are moving out of the nonprofitable lines or low margin business to regroup and refocus on stronger margin areas. For example, Dr. Reddy's Laboratories has stopped producing salbutamol syrup for pediatric use. 

—Jane Wan is a freelance writer based in Singapore

New price-control policy has domestic and global firms waiting on the sidelines to launch products.

Report from India

In recent years, the Chinese government has been ramping up efforts to improve drug distribution throughout the country. In its 12

  Five-Year Plan (2011 to 2015), the government encourages re-organization, as well as mergers and acquisitions to improve the existing network which is fragmented and often inefficient. 

China's drug-distribution system has undergone development over the years. Prior to the reforms, state-owned wholesalers purchased drugs directly from manufacturers, resulting in bureaucratic order and lack of competition. When the country opened its doors to the world in 1978, manufacturers were given the go-ahead to sell drugs directly to pharmacies and hospitals. Although citizens have easy access to medicines today, drug distribution remains unregulated and users often obtain drugs from unknown or unauthorized sources. 

Drug manufacturers and distribution companies therefore continue to face daunting challenges in the Chinese market. To begin with, China is a huge country spanning 9.6 million kilometres with an estimated population of 1.3 billion, of which 700 million are located in difficult-to-reach rural areas. The government's aim is to narrow the gap of healthcare offerings between the urban and rural areas. However, Vice Health Minister Huang Jiefu cautions that, "the gap will probably not be closed in the next 30 years." 

There is also the problem of layers of distribution levels; drug prices rise at each level, which leads to higher distribution costs. Yvonne Wu, national leader, life sciences and healthcare of Deloitte China, says, "It is common that top-level distributors double up as second-level distributors. Having established good relations with hospitals of certain classes at various locations, they have different business focuses and strategies. Therefore, it becomes complicated to segregate and pick the right distributors by using level classification." 

Given this situation, it is not surprising that the government supports integration and consolidation of its drug-distribution network. Wu comments that, "this will contribute to the emergence of market leaders, support local pharmaceutical companies to market their products beyond China, and escalate the market position of the country." Huang Donglin, an industry analyst in the healthcare division of Frost & Sullivan China adds, "The gross margin of drug distribution has decreased over the years. Companies need efficient management, higher service quality and size to develop the business. And integration can only be achieved through in-depth organization and business adjustment." 

Well-established distributors have already adopted this approach. In 2010, Sinopharm Group, based in Haidian, Beijing, became the first to own distribution channels in all Chinese provinces by acquiring small and mid-size companies. In January 2011, Shanghai Pharma Group acquired CITIC Pharma to enter the northern China market. Newcomers such as Cardinal Health, based in Ohio, acquired Hong Kong-based Yong Yu (also known as Zuellig Pharma China) for $470 million in 2011. Cardinal also opened a logistics center in Shanghai to expand its business horizon in the country. 

The government's commitment to overhaul China's drug-distribution network has become quite transparent as a means to lower drug prices. Last September, it reduced the retail price ceiling of 82 pharmaceutical drugs by an average of 14%. The Ministry of Public Security recently ended a campaign involving 1280 investigations across 170 cities in 29 provinces and autonomous regions to ensure drug safety. There is also a need to ramp up digitalization of drug supervision. The plan has also included unified code management for approved drugs and electronic supervision of all drug types. 

China's five-year plan includes developing one to three large-scale leading distributors with annual sales of more than $15.9 billion.  There is also a plan to establish 20 regional distributors with annual sales of more than $1.6 billion by 2015. The leading domestic players (i.e., Sinopharm Group, Shanghai Pharmaceutical, and Guangdong Jiuzhoutong Pharmaceutical) held less than 20% of the drug-distribution market share in 2009. 

Wu says, "The plan may not have rigid performance indicators but it has identified six entrance thresholds. For example, a distributor's warehouse must be 50,000 square metres and cover 80% of its hospital network.  Other requirements involve areas of transportation vehicles, information systems, e-commerce, and annual sales volume." 

				 Interestingly, online purchasing of drugs is gaining popularity on Chinese soil.  Wu comments that online drug sales may still be in its infancy, but "it is expected to be a low-cost sales channel supporting major sales channels in the coming years." The online purchase option has also made the drug-procurement process for healthcare institutions easier and faster, a spokesperson at the drug purchasing department of Anhui province adds.   			

In fact, many provincial governments, including the Beijing Municipality and the Guizhou province, are promoting the use of online platforms. At the end of January 2011, Beijing's 167 medical institutions placed 289,423 online orders and 85 drug-distribution companies had fulfilled them. The online platform registered a 9858 medicines bought online with daily transaction value of $14.86 million. 

Looking forward, there are many opportunities for industry players in the drug-distribution business. The sector is expected to maintain an annual growth rate of 8% during the next five years to raise total sales to more than $1.2 trillion by 2015, up from $773 billion in 2009. However, drug-distribution companies will need to streamline their processes to strengthen their competitiveness in the market. Huang explains, "Distribution companies need to set up new operational strategies and optimize management structure to serve clinical demands. Ultimately, service quality and ability affect the competitiveness of a distribution company. Because it acts as a bridge between manufacturers and users, it must build on its range of value-added services to benefit both up and downstream parties." 			

Jane Wan is a freelance writer based in Mumbai

China's drug-distribution network has been a mess for years, but government reforms and industry focus are unveiling new opportunities for market order and growth.

Report from China

Packaging is indeed headed to be a lead sector in the Asian pharmaceutical environment, but certain challenges must first be overcome.

Asia is a key driving force of the current global pharmaceutical industry. In recent years, healthcare demands among the region's populations have increased and its low operating costs continue to attract pharmaceutical companies. The pharmaceutical packaging sector, in particular, has grown and matured in line with the emergence of China and India as pharmaceutical manufacturing leaders, according to Warwick Bedwell, president of pharmaceutical packaging systems (Asia–Pacific) at West Pharmaceutical Services. Packaging is indeed headed to be a leading sector in the Asian pharmaceutical environment, but certain challenges must first be overcome. 

For starters, trends and developments within the region vary from one market to another. Joerg Doescher, sales director Asia of SCHOTT Pharmaceutical Packaging explains: "Emerging markets such as China and India show strong growth and are moving towards a trend of higher quality requirements. Mature markets such as Japan experience slower growth rates that are driven mainly by developments in the field of biotech solutions."  

PHOTO:BERNARD SIAO PHOTOGRAPHY / GETTY IMAGES 

Interestingly, a fragmented Asian market opens doors for diversified business opportunities and approaches whether they are through alliances, joint ventures, or acquisitions. But before a company can expect to be successful throughout the Asian region, it has to establish a local presence. Unlike the European and US markets, centralized production is necessary to learn directly from customers and to address local market needs.  

Companies "have to be clear about their product roadmap and product life-cycle management in order to be prepared for the market launch of packaging solutions that address future customer demands. Excellent customer relationships are essential to gain insights to local trends and developments to offer suitable products in time," says Doescher. 

This strategy explains why SCHOTT, based in Elmsford, New York, built a production site within an existing one in Suzhou to promote faster production of their glass products and to gain authority in the high-end Chinese market. The company's joint venture with Kaisha Manufacturers in Mumbai, India, allowed it to enter the Indian market and provided an opportunity to foster close proximity with customers, opinion leaders, and shareholders. Another example is West Pharmaceutical Services, which is building a second manufacturing facility in Qingpu, China, to prepare for meeting the needs of the Chinese and Indian markets when production begins in 2013.  

Based on a BMI 2011 report, it is alleged that India accounts for one-third of the counterfeit drugs in the region. The World Health Organization (WHO) indicates that 30% of pharmaceuticals are counterfeits in developing regions such as Asia and Latin America compared with 1% in developed countries. As a result, pharmaceutical packaging players working within the Asian market are rushing to apply new and unique security features to their packaging systems to help prevent counterfeiting and to expand their level of support to pharmaceutical industry customers, says Bill Martineau, a senior healthcare consultant at the Freedonia Group.  

For example, MeadWestvaco (Richmond, VA) incorporates radiofrequency identification (RFID) tags into pharmaceutical folding cartons so that products can be identified and verified at various points in the supply chain. West Pharmaceutical Services has introduced seals whereby drug manufacturers can incorporate multiple layers of protection to their drug products to enhance patient safety, combat drug counterfeiting, and safeguard their supply chain.  

Implementing such systems, however, is not easy. "Few pharmacies in China and other countries have the equipment to authenticate drug packages. Moreover, governments have been slow to strengthen anticounterfeiting requirements due to resistance from local drug makers who depend upon high-volume, low-cost generics for sales and profits," says Martineau.  

Krithika Tyagarajan, director for chemicals, materials, and food Asia–Pacific at Frost & Sullivan, highlights that major packaging companies have to consider various requirements to implement an effective track-and-trace technology into their systems. For example, the design has to be protected. It should be foolproof and difficult to copy, and must be consistent throughout the application. Companies such as Dr. Reddy's, based in Hyderabad, India, are working with packaging manufacturers and track-and-trace technology providers to supply consistent and cost effective applications. Bilcare, of Pune, India, has introduced a patented, nonclonable track-and-trace authentication-enabling technology that allows the product to be traced from origin to consumer.  

Asia's aging population is also changing the way packaging is developed for products in the region. Several Asian governments have increased health insurance and reimbursement plans, thereby giving a much higher percentage of the population access to medicines. "The elderly prefer recognizable and straightforward opening methods. So, the challenge is to design one that is highly visible [and] easily identifiable," explains Tyagarajan. Products need to be both senior-friendly and child-resistant. In addition, he points out that "companies need to consider factors including product package compatibility, safety and security, sustainability, regulations and compliance, delivery format, waste management of disposables, and track-and-trace capability." AstraZeneca has incorporated all of these factors into the design of their products. Rexam, also based in the United Kingdom, has come up with a design for cap closures that is senior friendly.  

Another consideration with the aging population is the number of intravenous infusions delivered each year throughout the region, currently about 6.5 billion. That number is expected to grow, placing the need for prefillable syringes and cartridges in high demand, says Bedwell. 

Looking forward, Asia's pharmaceutical packaging industry looks promising. Currently, the region accounts for 26% of the global pharmaceutical packaging market, but that percentage is expected to increase to 34% by 2015. China alone is expected to grow from a 5% share to 15% in 2015, and India from 2% to 4%. 

Packaging-sector growth and success will differ among countries within Asia, and those that grab hold of it are likely to win big. "Packaging is used as a differentiator and brand builder. With time, packaging will take on different forms in the healthcare sector and will not [be limited] to security or safety aspects," adds Tyagarajan. 

Report from Asia

Asia's biomanufacturing industry has a lot to live up to in the coming years. A Business Monitor International (BMI) report projects that Asia's share of global biopharmaceutical manufacturing facilities alone will double between 2009 and 2013, growing from 10% to 20% of global market share. Asian contract manufacturing organizations (CMOs) are most likely to benefit from the growth. Multinational companies are looking to outsource in order to combat escalating costs at home. To compete, Asian CMOs are making fast strides to comply with FDA and EMA standards and requirements.				

To date, India has the highest number of FDA-certified manufacturing facilities and more than four times the number of drug-manufacturing staff than does the United States (India has more than 12 times the number of manufacturing staff than the United Kingdom). Also, China is working hard to address its intellectual property (IP) rights issues. In 2007, the government issued 53 regulations related to drug-approval process improvement and shortened its timeframe for investigational new drugs by half.   

Industry players have also expressed confidence in Asian developed countries such as South Korea and Singapore. These countries have well-established manufacturing environments and promising government initiatives. For example, Singapore's biomedical integrated strategy, launched in June 2000, has attracted big players, including Lonza and Novartis, to set up shop in its country. In June 2011, Lonza committed an additional $12.2 (CHF$10) million to further expand its Singapore plant in response to the country's positive economic growth and the government's continued support for the biopharmaceutical manufacturing sector.  

To keep up with the ongoing and expected growth in biopharmaceutical manufacturing, domestic Asian CMOs are implementing a few changes to attract more global attention, including partnerships and investment.  

In recent years, many pharmaceutical companies have shifted their focus from straight manufacturing to innovation, productivity, and quality control. Use of new technologies that are cost-effective and require minimal maintenance is growing more than ever before. Single-use technology, or disposables, in particular, is becoming more popular among CMOs based in Asia. The technology makes CMOs more attractive because it reduces production complexity and extends the range of services that can be offered to global customers. 

Jay Chandran, associate research director of the healthcare division Asia Pacific for Frost & Sullivan, says, "[Single-use technology] will gain popularity in Asia in due course as it becomes a mandatory manufacturing capability to have if manufacturers want to remain competitive in the export markets of North America and Europe. Collaboration with large international players will further encourage the use of this technology in Asia."  

In 2008, San Diego-based Pacific Biopharma Group and PacificGMP partnered to establish a single-use facility called China Quantitative Biomedicine in Taizhou, China. The facility will manufacture proteins for the US and European markets, and aims to meet the rising demands in Asia. 

Four to five years ago, the way to gain access to biomanufacturing was by outsourcing to CMOs through traditional procurement processes, or by building or acquiring facilities to assert control in supply. In recent years, there has been a paradigm shift toward merger-and-acquisition (M&A) strategies. 

Michael Banks, head of sales and business development for biological manufacturing at Lonza, says, "The strategies are diverse, including local or CMO–border partnerships, outsourcing strategy, and manufacturing optimization. As it has a lot to do with increased cost pressure, the shift is a result of accumulative technical experience and maturing of technologies."  

Interestingly, many companies outside the pharmaceutical business are taking a plunge into the biomanufacturing market as well. In February 2011, Japan's Fujifilm announced that it will acquire Merck's Biomanufacturing Network for $490 million. South Korea's Samsung established a joint venture with Quintiles (Durham, North Carolina), whereby the latter will commit $30 million to support Samsung's entry into the biopharmaceutical market.  

The move by these high-tech companies bears significance for the industry. "These are positive CMO–industrial moves for the biologics market," says Banks. "In the long run, it will strengthen the biomanufacturing value chain and fuel a full-fledged regional supply chain involving raw materials, talent, and various adjacent CMO establishments. These ancillary factors will further encourage the growth of the Asian innovator's pipeline and contribute significantly to the health of the global biopharma market in the near future." 

A key challenge facing the biomanufacturing business in Asia is gaining access to an experienced workforce. According to Banks, "Biomanufacturing is a young sector and a people business. It is therefore important to develop, troubleshoot, and optimize the processes, and ensure know-how and expertise to achieve timely delivery and cost effectiveness." 

To get ahead in this area, Lonza, for instance, has trained the majority of its workforce under the Strategic Attachment and Training program with the Singapore Economic Development Board in Singapore.  

Overall, the biologics market is predicted to be next area of growth in Asia and globally as companies aim to compensate for their potential loss of revenues from current small-molecule blockbusters. Many companies have already embarked on biologics programs, facility establishments, and related partnerships and acquisitions. Flexibility will be crucial, says Banks. "It is important to address to both market and technological demands. As a biomanufacturer, it is imperative to consider market segments and production demand instead of focusing only on blockbuster drug development and orphan drugs," he says.			

 Jane Wan is a freelance writer based in Singapore

Contract manufacturing organizations throughout Asia are increasing their capabilities to meet market demand and attract foreign investment and partnerships.

China's contract-research industry has come a long way. In fact, it reached a milestone when Shanghai-based WuXi PharmaTech listed its initial public offering (IPO) on the New York Stock Exchange in September 2007. In the same year, Hutchinson Medipharma established an agreement with Eli Lilly to work on novel compounds in oncology and inflammation. 

 (PHOTO: TOM BONAVENTURE, GETTY IMAGES)			

Looking back, China's contract research industry consisted mainly of chemistry-based companies, largely as a result of a limited talent pool and accessibility of quality deliverables in the early 1990s. As the regulatory and business environment improved in the mid-1990s, however, foreign CROs found their way to Beijing and Shanghai, driven largely by demographic changes, economic trends, and the untapped potential of the Chinese market. MDS Pharma Services was the country's first foreign-based contract research organization (CRO) followed by  Quintiles Transnational, Covance, and Kendle. 

Today, the CRO industry in China has developed tremendously. According to Jan-Willem Eleveld, vice-president for management consulting (Asia–Pacific and Japan) at IMS Health, the CRO industry has evolved from preclinical offerings to clinical studies. Established players such as Wuxi PharmaTech are also opening new business in the clinical-trial arena, and there has been a rise in the number of firms that have established current good laboratory practice (cGLP) facilities to carry out studies in China.  

Adds Eleveld, "CROs are facing a new reality that Big Pharma [is] moving away from a pure out-sourcing model and establishing fully integrated R&D centers in China. Unlike past R&D outfits designed for local clinical trials for local approval, new R&D investments are for the purpose of global pipeline. As a result, they build more in-house capabilities in all aspects of R&D and use CROs (preclinical) to manage capacity overshoot. On the other hand, clinical CROs have great future because more and more new drugs will be developed in China as part of a global R&D hub."  

Recently, there have been a number of active new establishments and acquisition activities, resulting in the doubling of foreign CROs in the country last year alone. Several foreign companies have expanded their services into central laboratories and drug-supply management. In a move to remain competitive in the changing business environment, many local companies have embraced the mergers and acquisitions (M&A) approach by opening their services to international drug developers. Some are also actively gaining accreditation from organizations, such as the American Association for the Accreditation of Laboratory Animal Care, to gain a better market position in the eyes of international clients.  

				In April 2010, New Jersey-based PhytoMedical Technologies signed a Letter of Intent (LOI) with Shanghai Medicilon, a premier Chinese preclinical contract research company to advance PhytoMedical's anticancer compound by conducting investigational new drug studies under cGLPs on its lead drug (D11B).			

The Chinese government plays a paramount role in developing the contract research industry in the country. Its Contract Research Organization Union China (CROU) developed the first industry standard, 

Clinical Trial Services of Contract Research Organizations

, for the sector. Johnny Huang, senior consultant on healthcare practice for Frost & Sullivan China adds, "The Chinese government is adopting a market policy to improve its regulatory environment and CRO industry development. Its initiatives for drug discovery in past years included strengthening of intellectual propoerty rights and focusing on shrinking evaluation time for drugs. The government has also focused on its infrastructures by creating technology parks, such as Shanghai Zhangjiang Hi-Tech Park, establishing a large talent pool in the field of pharmaceuticals, and formulating numerous government bodies that help develop drug discovery in China."  

Perhaps the challenge for the government going forward will be to harmonize local CRO culture and international drug-research standards, he says. Some leading pharmaceutical companies have taken initiatives to help local CROs improve their practices in this area. For example, Pfizer is working with leading academic institutions to educate scientists in state-of-the-art practices for drug R&D.  

Overall, to achieve success in the Chinese market, CROs need to adopt a cost-effective approach for their business. Huang says, "Flexibility and scalability of operations allow companies to be more nimble and respond to change faster. In the long term, CROs in China have to create their advantages in local talent pool, unique service, and strong partnership with local clinical experts. These are the key ingredients to success, especially in multicentered clinical trials in China." 

—Jane Wan, a freelance writer based in Singapore

The contract-research industry in China is growing in leaps and bounds, and Big Pharma is leading the way.