Many pharmaceutical companies in China are hoping to pass major international certifications, such as certifications from the WHO, EU and Australia. “It is likely that 20 pharmaceutical companies can obtain international certifications this year,” said Mr Yu Mingde, a vice-director of China Pharmaceutical Enterprises Management Association.

Temptation from the outside

2007 was another record year for China's western medicine export value, up 56% to US$784 million. However, most medicines that went to big markets such as Japan, Korea and Australia were products from foreign companies in China, mainly in the form of export processing trades. Products made by domestic Chinese companies were exported to low end markets such as Nigeria and Pakistan. As Chinese pharmaceutical companies are still weak at proprietary R&D, most of their products are generic copycat drugs.

Yu revealed that “the big three markets of EU, US and Japan have different market systems to ours. For the same generic drug, profits from selling to the big three markets are 5-8 times of those in China.” A more pressing issue is that almost half pharmaceutical companies in China currently have idle capacities.

On one hand it is the high profit from international markets, on the other are the capacity surplus and vicious competition in the domestic market. It is not hard to see why the Chinese government has been emphasising medicine exports in its healthcare industry planning, and “going out” has also become a consensus in the Chinese pharmaceutical industry.

Access to the markets

The EU mandates that medicine access permits will only be granted to companies inside the EU jurisdiction. So if foreign companies want to sell medicines to the EU market, they have to establish local branches or find local partners. FDA in the US also has similar requirements.

Yu suggested that for Chinese medicine products to enter EU and US markets, Chinese companies may try arrangements such as local mergers and acquisitions, registration of local offices or seeking local partners, and local partnerships would probably be the easiest. It is understood that those companies whose products have passed the EU certification, such as Hisun Pharmaceutical, Wuxi Kaifu Pharmaceutical and Shanghai Tianping Pharmaceutical, have all chosen the partnership path.

Yu, who has 30 years' pharmaceutical management experience, pointed out that regulations, processes and even social cultures in foreign markets are “very different” from China. He suggested that for Chinese companies that are “testing water”, in light of the reality of few foreign distribution channels, they can temporarily choose the OEM (original equipment manufacturing) or commissioned processing paths. Only when they become more sophisticated in this area, they may then go for mergers and acquisitions, local entity registration and brand building.

Zhejiang Reachall Pharmaceutical's fast-track FDA approval in the US was a good example of smart leverage. In early 2007, a big American pharmaceutical distribution company approached Reachall, requiring it to produce ointment products for the North American market. After a series of inspection, research and negotiation, a long term cooperation agreement was signed between the parties. In the same year, an existing Reachall ointment product successfully obtained the FDA certification in US, and the first batch worth US$300,000 was shipped to the US in November.

Breaking the barriers

Since China's entry into WTO in 2001, many European, American and Japanese pharmaceutical companies have been shifting their raw ingredient and intermediate product production processes to China. “Production outsourcing has taught Chinese companies a valuable lesson in terms of international practices, environmental awareness, quality control and patent protection, and this has greatly improved our competitiveness and international status.” Yu thought that behind the OEM orders and profits, medicine exports from China have to overcome the barriers of international standard integration and product quality breakthrough.

General Manager of Shenzhen Lijian Pharmaceutical, Mr Ouyang Qing, said that in terms of macro aspects, market access rules for medicines between the Chinese market and major overseas markets are similar. The differentiation lies in detailed administrative aspects, such as certification, risk assessment and variable products. Yu also stressed that apart from finished product certification, some overseas markets would require related certification of ingredients, in order to maintain the stability of product qualities.

As for how to find the sweet spots, there may be some examples to follow. According to Mr Ouyang, Shenzhen Lijian was previously in the business of exporting ingredient drugs, whose good quality had won a long term order for a German company. When Lijian decided to expand its valued-adding medicine production business, that German firm was at the same time thinking about shifting their OEM preparation production from France and Italy to lower-cost markets. “So our German partner had played a key role in Lijian's winning of EU certification,” Mr Ouyang revealed.

And the key to Reachall's quick FDA approval in US was the choice of products. Compound polymyxin B ointment is an OTC (over-the-counter) product in the US, and the FDA already had detailed requirements on the ointment's quality, instruction and labelling. This ointment was popular in the US and had gained acceptance in terms of effectiveness and safety. On the other hand, Reachall was the first company in China to produce the generic version of the ointment, and the company had adopted FDA standards even when it was applying for certification in China. This no doubt helped its international entry.

To participate in global competition, the Chinese pharmaceutical industry has to make efforts in certification system integration, English communication skills, product selection and R&D. Company managers should also have long term planning, instead of being opportunistic.

“Don't underestimate the demand for Chinese generic drugs from international markets, which have already shown great interests and tolerance to their Chinese counterparts,” Mr Ouyang suggested. Mr Yu also thought that there will be more and more Chinese pharmaceutical companies entering major overseas markets. But Yu reminded that there will be a new level of price and variety competition for winning multinational commissioned processing contracts in China. The biggest advantages for Chinese companies are their low costs and acceptable quality, but the profitability will gradually decline as more and more followers trying to take a piece of the cake.

Source by Face Zhang