Jane Wan is a freelance writer based in Singapore.

Jane Wan

In recent years, the fortunes of big pharmaceutical companies have declined due to the global economic crisis as well as other issues such as expiring patents and dwindling pipelines in the industry. These changes have prompted companies to seek new markets and opportunities outside their traditional borders. Many are attracted to Asia given its largely untapped potential, low operating costs, huge population base, and rising occurrences of common diseases including cancer and heart diseases. 

In a nutshell, Asia presents significant business opportunities for multinational companies, but there is work to be done. Reynold (Pete) Mooney, consulting leader for the life sciences and healthcare industry at Deloitte Touche Tohmatsu Limited (New York), explains, "Asia is not just one market but a diverse range of markets.  As each market has its distinctive characteristics and dynamics, companies need to fine-tune what they do in a specific market in order to compete effectively." 

Take, for example, sanofi-aventis (Paris) which is locally branding in each market in Asia 

 acquisitions. The company signed a collaborative agreement with Hangzhou Minsheng Pharmaceutical Group (Zhejiang) early this year, which marked its entry into the consumer healthcare segment in China. The French company has also inked a licensing deal with Glenmark Pharmaceuticals (Mumbai) for the development and commercialization of new molecules for chronic pain treatment. Again, this is significant for sanofi-aventis considering that the osteoarthritic pain market is estimated at $4 billion with 40 million patients. Similarly, Bayer (Leverkusen, Germany) has introduced high-growth therapy drugs (e.g., Glucobay for diabetes and Adalat for hypertension) in the Chinese market. Today, the Chinese market accounts for 3% of its group revenue. 

In fact, many companies are starting to explore ways to enter Asia. "Given that the Asian market is developing rapidly, it will be advantageous for companies to enter early. This will give them the opportunity to gain experience and to grow alongside with it," says Mooney.  India is one such market that pharmaceutical firms may want to focus on given the country's low-cost manufacturing and research and development. As the Indian market establishes itself over time, foreign players will have to build selling and marketing capabilities. However, Mooney points out that there will be mixed success of foreign companies in the Asian marketplace depending on their market-entry strategies.  

Interestingly, governmental policies play a paramount role in ensuring the success of foreign firms in Asia. When China advocated its open-door policy and socioeconomic reforms, it attracted a significant amount of foreign fixed investments for its pharmaceutical industry. Between 1980 and 1988, there were approximately 1600 foreign establishments in the country. The government's commitment of US $125 billion to Chinese healthcare infrastructure and universal health coverage by 2011 has kept the interest of foreign companies and encouraged them to stay in China as an overseas market avenue.  

The mergers and acquisitions (M&As) trend is also starting to emerge in the Japanese market. Under the Abe government, new regulations have opened doors for foreign firms to purchase Japanese firms. The move has paved the way to develop areas such as drug development and generic-drug manufacturing for Japan's aging population. In addition, the government's strong push to develop the generic-drug industry has attracted many multinational pharmaceutical companies into the country. For example, Lupin (Mumbai) is able to make inroads into the Japanese generic-drug market given its 80% stake of Kyowa Pharmaceutical.  

Still, many pharmaceutical companies have yet to stamp their presence in Asia. Only the larger firms seem to have made real gains. Earlier this year, Pfizer (New York) commented that it is expecting its China business to grow by at least 25%. It has planned to forge more partnerships and expand its team of representatives, many of whom are trained doctors, from 2300 in 177 cities to 3200 in 252 cities by 2011. It is also teaming up with Japan's Takeda Pharmaceutical (Tokyo) to sell the latter's blockbuster Actos diabetes drug in China. On the other hand, Novartis' (Basel) made a $1 billion research and development investment in China and took an 85% stake in a privately held vaccine company in China.  

"Currently, many foreign firms are still playing the catch-up game and exploring ways to enter the Asian market. Some are considering the M&As option as a means to increase presence in Asia," says Jan Williem Eleveld, vice-president of consulting and services for the Asia–Pacific at IMS Health.   

In the long run, local and foreign companies are likely to benefit from global partnerships in the Asian region. As Pieter de Geus, vice-president of strategic business development at DSM Pharma Cluster (Heerlen, The Netherlands), explains, "Generally, professional sales and marketing of MNCs [multinational corporations] will elevate the overall market practices for local companies. The [intellectual property] protection environment will also improve [in Asia] as there will be a push for sophisticated and efficient research and development requirements." He noted that the presence of global firms will also fuel the generic-drug market.   

Eleveld adds, "There will be a positive development for patients and governments as foreign firms will support the availability of innovative medicines to treat unmet medical needs in the region. This will also present an opportunity for local companies to assist their foreign counterparts through joint marketing collaborations." 

Interestingly, Asian companies are making their presence known in overseas markets although the industry has yet to see a definite regional or global player. Some attempts to increase overseas presence include Simcere's (Nanjing, Jiangsu) in-licensing of an oncology drug and clinical-trial program in the United States, and the China National Biotech Group's (Beijing) attempt to become a worldwide vaccine manufacturing leader.

Mooney says, "Asian companies are expected to perform well in overseas markets. We can certainly expect them to gain dominance over time and to come up with products that are innovative at lower price points that will cater to both US and European markets." 

Articles

Global pharmaceutical companies have much to gain in Asia, and the good news is that it's a two-way street. Firms based in Asia are also expected to grow at the global level.

Report from Asia

Recently, members of US House of Representatives asked the US Food and Drug Administration to provide a statement regarding its inspection of heparin manufacturers in China. The House also asked FDA to demonstrate its level of cooperation on safety standards with its Chinese counterpart, the State Food and Drug Administration (SFDA).    

In 2008, the active pharmaceutical ingredient (API) in Baxter International's (Deerfield, IL) heparin was found to be contaminated with oversulfated chondroitin sulfate, supplied by Scientific Protein Laboratories' (SPL) Changzhou, China, facility. More than 80 people around the world died as a result of the contamination.  

(PHOTO: PETER ADAMS, DIGITAL VISION, GETTY IMAGES)			

Given the seriousness of the issue, drug manufacturers have been increasing efforts to address heparin quality and safety. "Companies are now more focused on the need for assuring supply chain [safety] such as employing competent personnel to perform audits on suppliers and conduct thorough investigations on manufacturing sites and systems," says Dr. Bernd Renger, member of the Board of the European Compliance Academy (ECA) Foundation and chairman of one of its interest groups, the European Qualified Person Association, an independent membership association for quality personnel focused on good manufacturing practice (GMP) and regulatory affairs. "It is also interesting to see whether this issue and skepticism will affect business decisions. After all, it is a global issue with implications for brokers and importers," he said. 

Looking back, the US Pharmacopeia revised its heparin sodium and heparin calcium monographs and their related reference standards in the summer of 2008. A second stage of revised tests and accompanying reference materials harmonized dosage measurement units, added new methodologies for identification as well as a new potency assay and additional impurity tests. The second-stage revisions were released in October 2009. A third stage of USP revisions to the existing heparin standards involving laboratory research is in progress.  

SFDA and Chinese manufacturers are also becoming more proactive in ensuring heparin quality in the country by enforcing tougher quality control procedures in production. For example, a Chinese safety representative from National Institute for Control of Pharmaceutical and Biological Products participated in a recent USP meeting to help draft a heparin monograph (now approved) to set purity standards for the ingredient.   

Chinese manufacturers such as Donying Tiandong Biochemical Industry (Donying, Shandong) introduced a capillary electrophoresis instrument to analyze heparin products based on the US FDA's guidelines and also contracted a local university research laboratory to conduct the analysis. Leading domestic manufacturer Shenzhen Hepalink (Nanshan District, Shenzhen) built a factory based on FDA's requirements and enforced a more strict set of rules to ensure quality and safety, including tracking the sources of its raw materials and placing its employees in quality-assurance laboratories of suppliers' premises.   

Generally, purity standards have improved since last year, according to Jian Liu, associate professor of medicinal chemistry and natural products from the University of North Carolina at Chapel Hill. He adds, "These purity standards apply to active pharmaceutical ingredients (APIs) entering the US. The protein and nucleic acid contamination levels have been reduced. Global heparin manufacturers are also required to demonstrate that the final product does not contain oversulfated chondroitin sulfate. Although there is still room for setting up even higher standards to improve the purity, we also need to consider if higher purity standards are economically and commercially feasible." 

The heparin scandal highlighted the importance of analytics and information technology (IT) throughout the industry. Jamie Velez, head of Supply Chain Management Practice at Tunnell Consulting, a pharmaceutical consulting firm based in Pennsylvania, noted that it is important to implement tracking systems that help maintain visibility within the supply chain. In fact, he says there is a lot of pressure for companies to replace older pharmocopeial identification and authentication methods with cutting-edge technologies. Some newer methods such as nuclear magnetic resonance are mentioned in the latest 

Renger adds, "Industry and regulatory authorities should put greater emphasis on site inspections by exploring measures like joint audits to share cost and resources. The activities of Rx-360 [the international pharmaceutical consortium for supply-chain security], APIC [the API Committee that falls under the European Chemical Industry Council], IPEC [the International Pharmaceutical Excipient Council], and IPEA [International Pharmaceutical Excipient Auditing] are valuable contributors to lead to this desired result as is the [Australian-European-US] pilot project to rationalize the international GMP inspection activities. Also, the importance of a comprehensive technical or quality agreement cannot be overstated even if the lack of language knowledge, resources, and expertise may open issues for policing it."  

Renger feels that strict control and continuous surveillance based on local expertise and intelligence should be enforced rather than the more common practice of conducting a two-day audit of an offshore supplier every two years. Therefore, the opening of US FDA offices in Beijing, Shanghai, and Guangzhou in 2008 must be considered another step in the right direction.   

While industry and regulators work to improve supply-chain safety to prevent another global contamination incident, some companies are looking for alternatives. Researchers at the University of North Carolina at Chapel Hill have produced a version of synthetic heparin that does not involve the use of animal tissues. This version minimizes production interference and ensures safety in the case of a disease outbreak. Also, synthetic heparin can be synthesized in manufacturing sites under GMP regulation and easily inspected by regulatory agencies. Synthetic heparin is still manufactured on a milligram level compared with the 100 tons required per year by industry, but steps forward in this area could revolutionize heparin manufacture, Renger says. 

Manufacturers and regulators on both sides of the ocean move to ensure the safety of heparin and other globally distributed drug products.

The outlook for the vaccine market in emerging and developing countries has been improving in recent years. As global threats such as severe acute respiratory syndrome (SARS) and the H1N1 swine-flu continue to grow, global pharmaceutical firms are paying more attention to what was previously considered a low-revenue margin sector.  

Today, the global vaccine market is growing at 13% annually. In developing countries, however, the vaccine market is growing between 20 and 30% per year. Asia in particular is on the radar of multinational manufacturers as markets back home become more competitive and saturated. Moreover, as the growth rates demonstrate, the Asian market demonstrates major growth potential. The Indian pharmaceutical market, for example, is growing at 10% annually, according to several sources. The Chinese market is projected to grow 25% per year and its market size is likely to hit the $1.17 billion mark by 2012, according to Chinese venture capital firm Zero2IPO. Today, China is the world's largest vaccine-maker in the world with more than 40 domestic vaccine manufacturers spanning the country.    

 PHOTO: STEVE ALLEN, BRAND X PICTURES, GETTY IMAGES 

 Multinational firms flock to China and India 

Market dynamics have evolved significantly, especially in Asia, says Aparna Krishnan, a senior research analyst at IHS Global Insight, a market research firm based in Lexington, Massachusetts. "The biotechnology industry in Asia has gained its knowledge depth through international alliances and has been the focus of government funding," she says. "The demographics, patient profile, and economic growth have made vaccination programs an integral part of national healthcare policies. While immunization campaigns have tended to mainly include pediatric vaccines such as BCG, Pertussis, Polio, etc., the inclusion of hepatitis B, C, and cervical-cancer vaccines in national programs have signaled [a move] toward higher reimbursement and acceptance in Asia."   

Large global pharmaceutical manufacturers such as GlaxoSmithKline (GSK, London) and Millipore (Billerica, MA), which is undergoing acquisition by Merck KGaA (Darmstadt, Germany), wasted no time in stamping their foothold on Asian soil. Last October, GSK extended its presence in China through a joint venture (JV) with Jiangsu Walvax Biotech Company to produce pediatric vaccines for the local market. Millipore completed the acquisition of Millipore India in a move to ensure seamless execution of business strategies and to address the vaccine market's needs.  

"The entry of foreign companies into the vaccine segment in [Asia] would provide new markets for their existing vaccine portfolio and enhance revenues given the higher number of immunization campaigns initiated by the Asian governments," adds Krishnan. "Furthermore, global pharmaceutical firms have looked at these markets as a cost-effective manufacturing destination and increasingly for clinical-trial research." 

Local firms stand to gain from foreign entry as well. "The entry would increase competition, but at the same time, provide opportunities for alliances with global pharmaceutical majors, wherein the latter will look for marketing strengths and even outsourcing their manufacturing requirements," explains Krishnan. "The former will gain from technology transfer and a wider portfolio." 

Brian Yau, vice-president for Asia India of Millipore, points out that domestic Asian facilities will primarily supply local needs while being structured to produce vaccines that, in terms of international regulations and good manufacturing practice standards, are equal to those made at other facilities and acceptable to ship worldwide. "The majority of the multinational companies (MNCs) will only realize their brand name and cost benefit in the next couple of years as they have just started to work with local partners to manufacture higher value vaccines for domestic consumption in Asian countries. More importantly, companies who are involved in vaccine manufacturing will be using the same quality and cost standards established by MNCs," he adds.  

Asian governments are helping to propel the sector forward, according to George Adams, Asia/India markets and vaccine-program manager at Millipore. "In addition to multinational-driven expansion, most countries have their own investment and expansion plans to ensure that they have the capacity to supply their own populations with necessary vaccines in a time of crisis," he says. In the case of Japan, the country has committed $1 billion over the next few years to expand egg-based influenza vaccine production, develop and implement tissue-culture flu, and explore next-generation flu vaccines to meet future needs. China has graduated to developing vaccines for local and foreign markets. These include hepatitis A and B, measles, mumps, inactivated influenza and split-influenza vaccines. After 2003, the country allowed the entry of private companies into the sector; previously, it had been dominated by 30 provincial-level, government-run disease centers.  

Adams reiterates that safe and quality products are necessary for MNCs to maintain and extend their presence in Asia. Perhaps, the ban on Ranbaxy (Haryana, India) for exporting drugs to the United States serves to remind vaccine-makers that they need to meet current standards or be left behind. 

The Chinese State Food and Drug Administration (SFDA) is introducing new manufacturing guidance documents to ensure that all drugs—not just vaccines—manufactured in the country are safe. With help from the US FDA, the agency has trained hundreds of inspectors during the past year on these issues. More strict enforcement is also being applied to health officials and companies that fail to act in the best interest of consumers.  

Asian-based companies are also playing their part to develop and improve existing vaccine-manufacturing technologies. For example, Vietnamese-based Vabiotech spearheaded the Vaccine Process Development Program to make these technologies available to qualified producers in developing countries with special focus on cholera, typhoid fever, and shigellosis diseases.  

Asian companies that collaborate with global suppliers—especially those armed with an array of services and skills—will have a key market advantage, says Adams. For example, Millipore has trained hundreds of operators and process engineers at training facilities in Bangalore, Singapore, and Shanghai. It also has a team of biomanufacturing engineers and scientists deployed in each country to assist in developing vaccines for companies.  

Looking forward, an increase in investment into the Asian vaccine market by local and foreign companies is likely. According to Yau, "The market is heading in the consolidation direction as big players acquire small ones in a move to accumulate and leverage volume, and solid double digit growth that will be fueled by demand from the domestic market and exports to overseas markets."  

The World Health Organization lists the following as high-priority vaccines for 2010: bioequivalent oral polio vaccine (bOPV), Dengue vaccine, DTP based pentavalent combination vaccine (DTP-Hep B-Hib and DTP-Hep B+Hib), Inactivated polio vaccine (IPV), Influenza seasonal vaccine*, Measles and measles containing combination vaccines, Meningitis A containing conjugate vaccine, Monovalent oral polio vaccines (1,2 and 3), Pneumococcal vaccine, Rotavirus vaccine, Tetanus-diphtheria vaccine for adults (Td), and Yellow fever vaccine.

As demand for global vaccine development and production grows, all eyes are turning to Asia.

The Philippine pharmaceutical industry is taking a beating from the government's decision to impose a 50% price cut on certain drugs. For the first time in the country's history, 21 molecules or medicines were forced to comply with the Maximum Drug Retail Price (MDRP) system that was implemented last September. These are medicines used to treat hypertension, diabetes, common infections, amoebiasis (a leading cause for diarrhea), and some cancers such as leukemia. The cut went into effect Aug. 15, 2009. In addition, pharmaceutical companies are committed to reduce by approximately 10-50% the prices of 22 other products. 

The price controls system is part of the government's Cheaper Medicine Bill, which was passed in late 2008. The system will be reviewed after three to six months by the Department of Health. To help enforce the price cuts, the government has lobbied the public to report noncompliant drugstores and has taken action against four such stores that violated the new ruling. 

Table I: Active ingredients that fall under the Philippine Mandated Maximum Drug Retail Price (MDRP) system.			

The system is meant to provide affordable and easy access to healthcare to citizens, especially the poor, but industry players remain skeptical that the program will provide such a solution. According to a statement released by the Pharmaceutical and Healthcare Association of the Philippines (PHAP), the price controls policy "is not the best approach as most medicines will remain inaccessible to the poor who live on an income of less than PHP100 ($2) a day." 

To worsen the situation, taxation on medicines comprises approximately 20% of the retail price of drugs in the country. This explains why medications (both over the counter and prescription) in the Philippines are typically priced 40-70% higher than those sold in nearby Asian countries, according to 2008 figures cited by the Philippine International Trading Corporation. 

Table II (Part 1): Drug products that fall under the Voluntary Price Reduction scheme as provided by Resolution 2009-001 of the Philippine Advisory Council for Price Regulation.			

Private hospitals have already upped prices for their services to offset the reduced drug prices. Other related problems such as delays in obtaining rebates from drug companies by drugstore representatives have also started to surface. 

Over the years, the government has implemented healthcare policies to alleviate the problem of accessibility and affordability, only some of which have been effective. For example, a generic-drug law expanded the amount of generic drugs and manufacturers in the country. On the other hand, the government-run PhilHealth insurance package is unable to cover the projected 77.4 million beneficiaries (84% of the 92 million Filipinos) because it has only 13.85 million paying members. Similarly, the Drug Price Reference Index, which is meant to inform consumers of prices, provides only retail-drug pricing and is unable to address the high drug-pricing problem. 

Table II (Part 2): Drug products that fall under the Voluntary Price Reduction scheme as provided by Resolution 2009-001 of the Philippine Advisory Council for Price Regulation.			

Healthcare policies aside, industry's primary concern about the MDRP system is that it may turn the tables on domestic firms. Nonoy Oplas, president of the Minimal Government Thinkers, a group of professionals and small entrepreneurs, says, "Local firms who are producing drugs under the 21 molecules will become more expensive sellers now. To remain competitive, the natural response is for them to slash prices between 10-20%, which will reduce their profits." 

He adds, "Domestic firms do not enjoy economies of scale due to high production costs. Eventually, many will be forced out of business. Unlike multinational companies (MNCs) who can divert their attention to other markets, home-grown companies have fewer product offerings and do not have other market avenues." 

On the other hand, it appears that foreign firms are likely to grow in the long run. Although their product prices are affected as well, the Philippine market is considerably small (about 5% of the global sales of multinational corporations) and, these companies can afford to divert their attention to other markets. They already hold a lead in manufacturing and retail revenue, according to 2008 PHAP figures. Foreign firms garnered total sales of PHP71.12 billion ($1.46 billion) compared to local ones at PHP32.46 billion ($0.69 million). 

Table II (Part 3): Drug products that fall under the Voluntary Price Reduction scheme as provided by Resolution 2009-001 of the Philippine Advisory Council for Price Regulation.			

Oplas believes that foreign drug manufacturers should feel encouraged to remain on Filipino soil to help develop the local pharmaceutical industry. The majority of MNCs in the country are focused on drug discovery, which can, in turn, create opportunities for local firms to produce generic versions when innovator-drug patents expire. 

That said, there's nothing to stop foreign firms from exploring the development and manufacturing of generic drugs for the Philippines market. Louis D. Payet, senior consultant of the healthcare division at Frost and Sullivan Asia- Pacific says, "Several MNCs have acquired generic-drug manufacturing capabilities in recent years. If they produce and sell them in the domestic market, local companies will lose market share and suffer reduced profitability as competition in the branded generic-drug market increases." 

In light of the current situation, some MNCs such as Bristol Myers Squibb (New York) may adopt business approaches such as engaging external sales personnel to continue un-disrupted supply to the market or out-license their products to local players while maintaining control over profitable product lines, according to Payet. 

Ultimately, patients are the losers. "We are likely to expect a fall in the number of generics companies and medicines in the country, which in turn, limits treatment options for doctors and patients," says Oplas. "Also, it is also possible that a black market emerges when storage, dispensation, and sale of essential medicines are no longer transparent [or competitive]. This paves the way for the entry of counterfeit drugs that are perfect substitutes for effective and expensive medicines." 

Payet is trying to stay positive. "The bill has to be more expansive in the number of drugs covered. Currently, there are more than 80 price-control candidates under review. The implementation of the price-controls system is just one aspect of the Cheaper Medicines Bill and may not have a big impact on the market." 

New pricing controls and healthcare reforms may be pushing the pharmaceutical market out of this southeast Asian country. This article contains bonus online-exclusive material.

Report from: the Philippines

China introduced good manufacturing practice (GMP) guidelines in 1998, but only recently has the government taken a strong stance to revise the guidelines in a bid to raise public safety and overall quality of drugs and medical devices. This move should come as no surprise as the Chinese government attempts to tackle problems such as counterfeiting, corruption, and contamination of products, including infant formula and heparin. Moreover, China has to contend with constant pressure from trade players and regulatory authorities to practice and adhere to international standards. 

In recent years, China's State and Food Drug Administration (SFDA) has implemented a slew of policies to improve the regulatory environment. The agency implemented stricter quality control guidelines and GMP inspection guidelines in April 2007 and October 2007, respectively. The 2007 guidelines allow GMP certificates to be issued only to companies that demonstrate zero flaws in their manufacturing process and enable authorities to deny GMP certification to companies that falsify application documents.  

The Chinese government has now passed a new draft of its GMP guidelines that detail basic requirements for drug manufacturing quality management and emphasize the importance of personnel qualification and quality infrastructure. Constituting 335 regulations, the 2009 draft guidelines include five annexes focusing on areas such as sterile products, Traditional Chinese Medicines, active pharmaceutical ingredients, biologics, and blood products. The quality and control of different types of documentation are emphasized. Other requirements, such as the International Conference on Harmonization's Q9 

guidline, supplier qualification and approval, change management, deviations and nonconformities control, are included. 

 "The draft follows closely to the European Union version and is a huge step forward for China's GMP. SFDA will play an instrumental role to ensure that these guidelines are met to ensure the health and safety of patients," says Morten Stenkilde, a quality director at Novo Nordisk AS, based in Tianjin, China. 

Angela Moy, global quality assurance director (GMP/GLP) of SGS Life Science Services (Geneva, Switzerland), adds, "Manufacturers will also have to learn the new GMPs, train their staff, and put quality systems in place to ensure product quality. When properly implemented, it will contribute to the growth of China's life sciences businesses and position the country to become one of the top five pharmaceutical manufacturers in the global markets within the next 5 to 10 years." 

To usher the industry forward, the Chinese authorities are also seeking to collaborate with regulatory authorities such as the US Food and Drug Administration. According to an FDA spokesperson, SFDA is now more receptive to issues concerning public health and science-based decision-making compared with a few years ago. "Our agreement with SFDA [signed in late 2007] provides a framework for bilateral growth and strengthening systems in areas such as firm registration, counterfeiting issues, and improving regulatory capacity," says the spokesperson. 

In November 2008, FDA established its first overseas office in China and now has offices in Beijing, Shanghai, and Guangzhou. FDA's presence in China is driven by manufacturing issues and the aim to impart US standards and requirements to its Chinese counterpart, especially since China is now supplying more than 40% of the active pharmaceutical ingredients (APIs) used to produce pharmaceuticals marketed in the United States. "We are helping to train Chinese regulators in specific technical areas to build their technical capability and are also working closely with agencies who have previously worked with the Chinese to gain insights on related issues. Also, our presence in China gives us the opportunity conduct more inspections," says the FDA spokesperson. 

Also pledging to help improve drug quality in China, the US Pharmacopeia signed a Memorandum of Understanding with China's National Institute for the Control of Pharmaceutical and Biological Products in March 2008. The agreement covers issues ranging from methods to detect counterfeit drugs to scientific expertise and research achievements. 

Taking cues from the US, SFDA understands the need to enforce tighter controls. The agency has been closing down manufacturers that fail to meet new standards. SFDA also launched an electronic tracking system to help monitor and respond to adverse situations triggered by drugs or devices, as well as to crack down on counterfeit products. Random inspections of facilities have increased as well, from 30% in June 2008 to the current 80%. 

China hopes efforts to improve its regulatory environment will attract and retain investments, according to Ulrich Markens, vice-president and regional manager Asia Pacific of SGS Life Science Services. "The revised GMP guidelines have increased standards and have also incorporated GMP principles from European GMPs, US 

[Code of Federal Regulations], and ICH guidelines resulting in confidence amongst Western companies who feel more encouraged to set up manufacturing facilities in China." To date, the country has attracted big names, including Novartis (Basel) and Abbott Laboratories (Abbott Park, IL), who enjoy the advantage of China's low operating costs as well as its growing familiarity and adherence to GMP guidelines. 

Implementing new guidelines, however, is not adequate enough to restore market confidence after significant quality-control events damaged China's reputation during the past few years. China needs to put these quality concepts into practice, says Markens. "The key is to build a strong local expertise base that China is lacking. A critical component of local resource investment is the transfer of expertise and Western lessons to Chinese talent. Ultimately, there is a need to establish a facility that is capable of operating autonomously and meet the regulatory and quality standards set by its Western counterparts," he adds. 

Undoubtedly, domestic Chinese companies must make an effort to adapt quickly to changes. One obstacle may be the large number of companies and people that the government must reach out to. To date, there are between 5,000 and 7,000 manufacturing facilities and approximately 14,000 domestic pharmaceutical distributors throughout the country. Enforcing GMP standards is more difficult in villages and towns compared with major cities. Moreover, the 2009 GMP draft guidelines may not be deemed as mandatory in the eyes of old-fashioned pharmaceutical companies or the general public. Ultimately, it will take time and education to impart these changes given the domestic Chinese market's current mindset and SFDA's limited resources. 

China's State Food and Drug Administration has completed a new draft of GMP guidelines, but after a series of quality-control events, it will take time for the country to regain the global pharmaceutical industry's trust.

Report From: China

In April 2006, the Japanese government introduced generic substitution to its healthcare system. Two years later, in April 2008, doctors were able to prescribe generic versions of drugs and the government put into place additional incentives to promote the emerging industry. Monetary rewards, for example, are now given to doctors and pharmacists who provide generic-drug prescriptions and who provide information on generic-drug usage to the public.   

It seems, in fact, that the Japanese government is going all out to develop its generic-drug market, a market that remained untapped in this country for many years. In June 2007, Japan's Ministry of Health announced a program to increase the share of generic drugs in its domestic market from 17% in volume in 2007 to 30% by 2012. Pending legislation seeks to increase the percentage of generic-drug sales from its current domestic market rate of 5% to 10% by 2020, and to 25–30% by 2050, according to Nitin Naik, vice-president of Asia Pacific Healthcare at Frost & Sullivan, a global consulting firm. "The primary aim of these reforms is to ensure that generics will graduate to mainstream products."  

Behind the government's push are escalating healthcare costs, patent expiries, and the country's ageing population. Frost & Sullivan projects that 35–40% of Japan's citizens will be over age 65 by 2050. Japan's current annual healthcare bill totals ¥30 trillion ($30 billion), of which drug costs make up ¥6 trillion ($6 billion), according to the Japan Generic Pharmaceutical Manufacturers Association (JGPMA). Under the country's new push for generic drugs, generic-drug companies are required to supply strengths of the same dosage form as that of branded drugs to cater to substitution needs. Generic-drug companies are also helping to market generics by distributing products to hospitals and promoting their benefits.    

As a result of these changes, many foreign companies have set up camp on Japanese soil over the past few years. In 2008, Indian-based Ranbaxy Laboratories launched generic tablets of amlodipine for hypertension in Japan with a market value of $2 billion. To date, Ranbaxy has successfully launched four products in the Japanese market. 

Foreign companies typically do not venture into the Japanese market alone. Instead, multinational firms come to Japan through joint ventures with domestic companies or acquire an existing generic-drug company. In the generic-drug market, there is a need for in-country experience, reputation, and relationships with Japanese partners, says Kate Kuhrt, director of generics and API intelligence at Thomson Reuters. The recent joint ventures between Israel's Teva Pharmaceutical Industries and Japan's Kowa Company, and between Iceland's Actavis Group and Japan's ASKA Pharmaceutical demonstrate this point. 

Japan is particular about the quality of its goods and services. Due to negative perceptions, Indian-based companies such as Ranbaxy are having a tough time in Japan. Ranbaxy's quest to make inroads in Japan became that much more difficult when the US banned the company from bringing products into the states due to good-manufacturing-practice violations at three of Ranbaxy's India-based plants (Dewas, Paonta Sahib, and Batamandi). FDA also stopped reviewing applications from Ranbaxy's Paonta Sahib plant due to evidence of falsified generic-drug data. 

Foreign companies face additional costs tied to Japan's multilayered distribution systems and slow drug-approval process. Governmental agencies and JGPMA have stepped in by encouraging pharmaceutical companies to use large national distributors, which are often less expensive. The time required for approving drugs should decrease when Japan's Pharmaceutical and Medical Devices Agency increases its man power. A Health Ministry committee set a deadline of Apr. 1, 2011 for reducing the review time for new drugs to 18 months. Currently, drugs come to the Japanese market on average four years after they have been launched overseas. 

Domestic companies in Japan are quick to form alliances with foreign firms in a bid to extend their generic-drug ambitions because the government's annual mandated price cuts and slow regulatory approval process discourage innovators, says Kuhrt. For example, Daiichi Sankyo's (Tokyo) acquisition of Ranbaxy not only opens Daiichi's access to the emerging Indian, Chinese, and Eastern European brand markets but also to the global generic-drug market. 

"Japanese companies are willing to in-license compounds from US or EU companies that do not have the bandwidth to commercialize products in their research and development portfolio in Japan," according to Naik. "This is expected to only accelerate in 2009–2010." 

Broadly speaking, generic drugs do not have a good reputation in Japan because they are still regarded as inferior compared with brand-name drugs. According to Kuhrt, the government is trying to educate the public through advertising and educational activities to improve the image of generic products as cost-effective and safe. Getting past resistance by the public and healthcare community, however, may take years of education.  

To make matters worse, wealthy Japanese have the purchasing power to buy branded drugs despite recent rises in copayments to 30%. A spokesperson at Sandoz (Holzkirchen, Germany), one of the top global generic-drug companies,  highlighted that pharmacies are not helping. A recent survey, says the spokesperson, revealed that almost half of Japanese pharmacies have not explained generic-drug substitutability to patients. This lack of education is further aggravated by the strong dominance of Japanese innovator companies. 

For now, reorganization within the Japanese market is likely to continue, says Kuhrt. "More innovators will launch their generic-drug products. There will be more mergers and acquisitions among Japanese players; [more] Japanese generics by overseas generic manufacturers, Japanese originators, and traders; and additional acquisitions by Japanese originators overseas. The Japanese generic-drug market may not grow as much as the government hopes, but we believe that it will continue to initiate additional incentives to promote generic-drug use."  

The Japanese government is eager to jumpstart its generic-drug market, but changes must come first.