How China has developed an increasingly powerful Life Science sector and what to expect in the future
This article explains the recent achievement of China's Life Science sector and summarizes the key strategies & plans of the government to lead on going progress.
China has been developing a steadily improving Life Science Sector
China has made notable progress on six major indicators with scores stated from 2015 to 2018: Regulatory environment (from 3.1 to 5.5), Market access (3.1 to 4.0), Funding for start-ups (4.6 to 5.5), R&D capabilities (4.8 to 5.0), Local innovation systems (4.1 to 4.4), Integration with global economy {foreign licensing, talent attractions, etc.} (4.0 to 5.0).
China has made rapid progress in biomedical knowledge creation. Already in 2016, it was responsible for as many biotechnology and applied microbiology publications as the USA. China has rapidly increased its pharmaceutical business R&D investment (by 254 percent from 2008 to 2015 alone).
Local Chinese companies are still mostly generics manufacturer
The majority of Chinese biopharma firms are generics focused. These companies have enjoyed profit margins above global average.
China has still too many small and mid-sized companies. Many are too small to truly innovate. More than 70 percent of China's pharmaceutical manufacturers have fewer than 300 employees and revenues of less than $3 million. The vast majority produce APIs or generic drugs. Chinese companies still produce only about 1 percent of new molecular entities globally.
The industry is consolidating
The Chinese government set a goal of having the top 20 domestic manufacturers of essential drugs control at least 80 percent of the Chinese market. One way the government has done this is through its Generic Quality Consistency Evaluation, wherein China only allows the first three manufacturers of a particular drug that passes the assessment stage to be granted a license to produce the drug for the following three years.
A second way the government influences the industry structure is through state ownership. Approximately 36 percent of major biopharma firms were state owned in 2006, with 35 percent privately owned and the remaining 29 percent foreign owned. There are several very large-scale state-owned pharmaceutical companies, including SinoPharm, China Resources Pharmaceuticals, and Shanghai Pharmaceutical Group. State-owned enterprises benefit from a number of advantages, including more-generous financing from Chinese state-owned banks, and reduced profit pressures.
Chinese companies are increasingly innovating
Chinese companies understand that they must innovate: The sector is science-based and it is hard to close gap with global biopharma leaders by simply copying them. Copying works for generics and biosimilar products, but much less for innovative drugs. China is moving toward becoming a producer of innovative drugs. Some have expanded internationally and have started R&D facilities in world-class biopharma innovation hubs.
Strong increase of very well educated and experienced scientists and Life Science business leaders
Many of China's biotech start-ups have founders that were educated abroad. Through its "Thousand Talents Program" China has convinced over 250,000 Chinese life scientists to return between 2012 and 2018. China's R&D talents are much cheaper than in developed nations. The median salary for a research scientist in China was estimated to be $39,000 compared to $78,000 in the USA in 2019. A study from 2013 estimates that clinical trials (account for about 40 to 50 percent of total drug development costs) can be 67 to 80 percent cheaper than in Japan or USA.
China focuses more on key scientific areas
When it comes to biomedical research funding, the Chinese government invests much less overall than the United States. However, funding levels are increasing, particularly in targeted emerging areas. For example, China launched its precision medicine initiative in 2016 with the equivalent of $9.2 billion over 15 years, compared with the U.S. NIH effort of only $1.5 billion over 10 years. Between 2016 and 2020, China was expected to allocate around $400 million for stem cell research projects, 10 percent for gene editing.
Strong investments in Science parks
By end of 2020, China spent around $1.45 billion to support 20 biomedicine science parks. This is in addition to the already over 100 national-level high-tech and economic industrial parks involving biotechnology, and more than 400 provincial-level parks. For example, Shanghai’s “Pharma Valley” is a 10-square-kilometer life-sciences parks that houses more than 500 biotech companies. Other local governments are also targeting the industry, in part by building research parks and providing tax incentives and direct subsidies. Often, these provincial parks provide discounted or free office space, laboratory and small-scale production space for up to six months, and after that, free manufacturing space—for as long as five years. For example, the Shanghai government provides any company that obtains new drug approvals in China and intends to manufacture and sell the medicines in Shanghai, with an annual subsidy equal to 10 percent of its initial research budget, up to a cap of 10 million RMB ($1.4 million).
China increasingly adopts global standards
China joined the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH). It obligates to implement a basic set of regulatory requirements for the manufacturing of pharmaceuticals, the conduct of clinical trials, and stability testing of pharmaceutical products. The effort is already leading to good results: Facilitate launching trials after 60-day review vs the current 12-18 month approval process. Allow use of non-Chinese data in the approval process for new drugs. Adopt the US and EU model to accelerate approval for breakthrough therapies. Improve IP protection via data exclusivity. Facilitate contract manufacturing and product licensing (by severing the link between marketing authorization and manufacturing licenses).
More drugs and better healthcare for Chinese population
China expanded its health insurance program in 2009 and covers more than 1.3 billion residents today.
In 2017, China added 340 drugs to its National Reimbursement Drug List (NRDL), including many novel and expensive biological drugs. It included 128 Western drugs. China made considerable progress in the drug approval process, significantly adding staff and improving process. China cracked down on fraudulent drug approval applications with severe penalties. It resulted in 86 percent of drug approval applications from Chinese companies withdrawn.
China's Biopharma strategy
The 13th Five-Year Plan (2015 to 2020) called for biotech industry output to exceed 4 percent of GDP by 2020. The State Council has called on all levels of government to provide necessary support. The Bio-industry Development plan sets biopharmaceutical sales to grow to $1.02 trillion by 2020 at annual growth rate of 20 percent. Strengthen innovation through R&D collaboration, commercialization of pharmaceuticals, advances in medical devices and modernization of traditional Chinese medicine (TCM). Optimize industry and organizational structure through cross-sectoral mergers & reconstructing, trans-regional shifts, and development of concentrated industry clusters.
"Made in China 2025" identified ten key industries including biomedicine.
Goals for 2020: At least 100 Chinese pharmaceutical enterprises obtain US, EU, Japanese and WHO authentication and achieve product export according to international drug standards. Develop and promote 10 to 20 chemical and high-end drugs, 3 to 5 new traditional Chinese medicines, 3-5 new bio drugs with complete drug registration. Speed-up internationalization of domestically produced drugs. Achieve 90 percent of generics production to replace blockbuster drugs whose international patent expire by 2020. Achieve breakthroughs for 10 to 15 important core and critical technologies.
Goals for 2025: Achieve drug quality standards and systems in line with international standards. Develop chemical drugs, traditional Chinese Medicine, biotech drugs focused on 10 major diseases. Achieve industrialization of 20-30 innovative new drugs. Achieve US FDA and EU authentication for 5-10 drugs.
The China's Strategic and Emerging Industries Plan and The Strategic Emerging Industry Development Key Product and Service Catalogue set also targets for Life Sciences:
The Chinese government's rational is very visionary and reflects solid understanding: It targets scientific areas that are currently not as explored or saturated, but hold many future opportunities: The focus is on biotechnology and biology rather than more traditional pharmaceuticals and chemicals. The 13th Five-Year Plan focus on genomics and other biotechnologies, networked application demonstration, the scaling of new generation biotechnology products & services (personalized treatment and innovative pharma). It is in line with studies that demonstrate that nations performed better in the pharmaceutical industry with strengths in biology and life sciences rather than chemistry. Some genomics-based drugs may need to be tailored to ethnicity, which gives local Chinese companies in developing drugs for Chinese use.
Conclusion
China has made remarkable progress in setting up an increasingly powerful Life Science sector.
If you are interested in more Health Care and Life Sciences related content, you can refer to my other publications or reach out to me directly at [email protected] or WeChat (ID: alexwsteinberg2 )
About the author: Alex Steinberg comes out of a family of doctors, scientists and other health care professionals who have sacrificed their lives to improve the health & well-being of people around the world. Alex drives digital transformation, innovation and intelligent automation efforts for the largest brand companies in China.
Special credits: This article leverages extensively text and content of the ITIF report "China’s Biopharmaceutical Strategy: Challenge or Complement to U.S. Industry Competitiveness?" authored by Robert D. Atkinson, August 2019.
Legal disclaimer: This article represents my personal opinion and does not reflect that of my current/ previous employer(s) or clients. The article intends to increase awareness, understanding and dialog about Health Care and Life Science issues. It does not present any offer or advice in a legal sense. Markets and technology change quickly and information gets out-of-date. The reader is advised to always seek individual analysis & consultation.