David Deere is the chief commercialization officer for PaizaBio, a US-based contract manufacturing organization and consulting group with in-country aseptic fill-and-finish operations in Hangzhou, China. Deere is a veteran global pharmaceutical executive whose career path includes Valeant Pharmaceuticals International, F. Hoffman-La Roche and Genentech.

David Deere

	Irrespective of political system, health care is now a universal obligation for both developed and developing countries. The growing complexity of medical technologies and healthcare services have created a costly and labor-intensive system that, when combined with the ensuing increased life expectancy, challenges governments across the globe.

	The “baby-boom” generations in the United States, European Union (EU), and Japan are beginning to consume healthcare assets at a record pace and countries are straining national budgets to meet these demands.

	China, with a population larger than all World War II nations combined, is hardly immune from a similar challenge. Post-Mao, since 1978, China’s economic miracle has led to a 50-fold increase in gross domestic product (GDP) per capita, lifting the country from one of the lowest to a middle-tier economy (1).

	Concurrent with this economic transition, China’s single-child policy was in force. While the population remains comparatively young, the mother of all aging booms is evolving and will ultimately lead to unprecedented demands on what is an inefficient, fragmented, and grossly underfunded healthcare system.

	Fortunately, China has two critical things in their favor. First, they recognize the impending healthcare demand. Second, they can learn from the divergent approaches that European countries and the US have taken to address this resource crisis and can adopt the most effective components that best meet their national interest.

	While achieving similar clinical outcomes, the cost of health care in the US is running at 18% of GDP, or roughly twice the EU mean average (2), with the cost of individual healthcare components-pharmaceuticals, hospitals, physician/professional care-often multiples of EU levels (3). Contributing to the cost chasm is the disparate cost of globally marketed healthcare products; the same products are far more expensive in the US than they are in the EU. Pharmaceuticals should be the most transparent of these costs, yet they remain the most opaque with large variation in average prices paid.

	In the case of China, drug costs, proportionally, are up to four times the Western average. Accordingly, China could dramatically increase their healthcare investment efficiency if they learn from the differing approaches the US and EU have taken when it comes to pharmaceutical acquisition and use. Considering the magnitude of potential savings, nowhere is there a more exemplary and fiscally meaningful comparison that China can learn from than that of the problematic evolution of the biosimilar sectors in the EU and US.

	Modern pharmaceutical drugs generally fall into one of two categories based on size and the way they are manufactured: small-molecule drugs that can be chemically synthesized and large-molecule biologics that are up to 1000 times larger than small-molecule drugs and are produced by living cells using advanced manufacturing techniques.

	While traditional small-molecule drugs have been around for decades and comprise the core of essential medicines used daily, modern biologics began in the 1980s with most adopted for use in clinical practice since 2000.

	High efficacy, often in chronic, recalcitrant, and age-associated diseases is characteristic of biologic therapies. With an aging population, usage in developed countries has proliferated, even though the drugs are dramatically more expensive than traditional therapies.

	However, this has not been the case in much of the developing world where traditional small-molecule drugs dominate drug formularies with patients having limited access to therapeutic biologics.

	Even with this exception, while small-molecule drugs account for more than 80% of global prescriptions, nine of the top 12 selling drugs are biologics, which account for the most brand profit and represent half of the industry’s late-stage drug research portfolios according to industry research (4) and the annual reports of top 15 R&D companies.

	The consequences of this reliance on biologic drugs are significant. With treatment costs reaching more than 20-times that of small-molecule drugs, biologics are decimating hospital and insurance pharmacy budgets as evidenced by their blockbuster domination of league sales tables (5). And, considering that only 2% of patients account for this expenditure, biologics-40% of total drug US costs and forecasted to be the fastest growing segment-are thrusting drug pricing to the forefront of national healthcare policy debates (6).

	There is a fiscally indispensable silver lining. The principal patents for most of these blockbuster biologics have expired, or will soon expire, making way for biosimilar copies (

			Table I. Global pharmaceuticals by sales 2017-Top 15.			

					Rheumatoid arthritis and inflammation (injection)

					Rheumatoid arthritis and lymphoma (injection)

					Deep vein thrombosis/Pulmonary embolism (oral)

					Macular Degeneration/Diabetic Retinopathy (injection)

					Diabetic Neuropathy/Postherpetic Neuralgia (oral)

Articles

While food, shelter, and clothing are the primal essentials for life, hope-as embodied by modern medicine-has now become part of that human expectation. 

Biosimilars and Healthcare Policy: What China Can Learn from the EU and US

The old adage “is the glass half empty or half full?” could be used to describe the diversity of opinion as to the health of the Chinese economy in 2016; the only caveat being, it would be more appropriate to reference a five-liter stein instead of a petite glass. Once a seemingly unstoppable freight train, China’s economic growing pains have created global conversation that swings from fear to optimism. Two events in January 2016 provide good examples of the West’s contrasting views of China’s future roles in the global economy.

	Prior to the World Economic Forum (WEF) in Davos, Switzerland, in January 2016, Goldman Sachs issued a white paper concluding that China could not smoothly transition from a low-cost, export-driven economy to a more domestic, consumer-driven economic model. The investment firm cautioned that a “hard landing” could be expected (1).

	The majority of the WEF’s 2600 attendees shared the view that China serves as the sine qua non of the world’s economic pulse, and that the current slowdown would have negative repercussions across emerging markets and eventually in developed market economies. While there was no formal consensus on China’s future, many attendees reported a foreboding sense of uncertainty (2).

	Just prior to WEF, the global biopharmaceutical industry gathered in San Francisco for the annual JP Morgan Healthcare Conference. In addition to the usual Wall Street and pharmaceutical executives previewing the year’s anticipated performance, there was a noticeable onslaught of interest in Chinese investment with a marked focus on healthcare and China’s up-and-coming biopharmaceutical sector (3, 4).

	What explains this schizophrenic view of China as an economy about to take a nosedive, while the healthcare and biopharmaceutical sectors portend significant growth?

	First, the macroeconomics of China has to be objectively viewed outside the prism of Wall Street. Yes, economic growth has declined in China from pre-recession double digits. From 2011-2015, however, China’s gross domestic product (GDP) was just under 8% versus approximately 2% for the United States and less than 1% for the European Union. The real debate about China is not whether there will be continued growth, rather it is uncertainty on how the government will structurally reform its state-owned enterprise sector, service national debt, and maintain social cohesion, all while the economy continues in a smooth transition (i.e., achieves a “soft-landing”) (5).

	The future of pharmaceuticals in China looks exceptionally bright because pharma represents a lower hanging fruit on the healthcare tree that can easily be addressed via government policy. Thus far in 2016, China is fearlessly advancing on reforming this critical and lucrative industry.

	China’s healthcare reform targets pharmaceuticals

	As incomes rise, expenditures on healthcare increases. In a country with one-fifth of the world’s population, this is a daunting societal expectation. While China spends 5.6% of their GDP on healthcare, per person expenditure is low and is now being vigorously addressed by government policy. In 2011, China spent $357 billion on healthcare, and McKinsey conservatively projects continued three-fold growth to $1 trillion by 2020, with other projections of $1.3 trillion (6).

	Among the most recalcitrant problems facing China’s healthcare sector is facilities use and allocation of finances and resources. Despite having 10,000 community health centers and 6000 county- and district-level hospitals, citizens prefer to use the 1450 tertiary-level facilities in urban communities. This serious resource imbalance is due to a perception that these advanced hospitals offer access to the best physicians and most current medical technologies and drugs.

	Hospital fees are low so there is no financial incentive not to go to these “super” hospitals. With limited private insurance and direct government subsidy covering only a small percentage of operating income, these tertiary hospitals derive the majority of operating revenue from pharmaceutical sales-most of them expensive, off-patent branded foreign drugs-and providing services beyond what is covered by basic medical insurance. This system incentivizes overtreatment and treatment with the most expensive products and thus is at the core of the Chinese government’s efforts to reform the hospital sector. However, hospital reforms are not easily achieved.

	Unlike the hospital industry, China’s pharmaceutical industry is small, disproportionally lucrative, and represents a much easier target for reform. Specifically, the government wants to get hospitals to stop selling drugs, lower the overall costs by switching to domestically produced multi-sourced generics, and control sales and distribution of only truly innovative foreign drugs to minimize over prescribing and better facilitate subsidy or third-party financing of these expensive products.

	Domestic pharmaceutical industry is key reform

	China’s efforts to train and resource China Food and Drug Administration (CFDA) staff to the level required to meet industry oversight obligations have been hindered, causing a number of consequences. The China pharmaceutical industry is highly fragmented and lightly regulated, and consists of more than 5000 manufacturers, 12,000 distributors, and a multi-year backlog of mostly domestic, un-prioritized, pooled applications of drugs for review and approval. The backlog serves as a disincentive to foreign research-based pharmaceutical multinationals from initiating the regulatory drug approval process for newer drugs.

	To circumvent the logjam, foreign drug companies have disproportionately relied on selling older, branded products at higher prices via China’s tertiary hospital network because of the revenue and patients’ preferences for western brands (

	The cumulative effect of these inefficiencies have led to higher-priced older drugs and a corresponding rejection of domestically produced products. While China has become the second largest global drug market, the Chinese have experienced what one industry expert called “a lost generation of new products” (7).

	China has a large unmet medical need involving multiple disease areas, but few of the newer drugs currently sold in the global markets are available in China. Only one-fifth of drugs launched in major global markets between 2008-2012 were available in China as of 2013 compared to 68% in the US (8). Underscoring the innovation lag time, of the 241 drugs approved by CFDA in 2015, 25 were from research-based foreign multinational corporations (MNCs). Of these, only 10 were new drugs and vaccines. By comparison, US FDA approved 45 novel drugs that same year (9-10).

	Recognizing the CFDA’s instrumental role in fostering domestic drug innovation as well as optimizing the contribution made by foreign MNCs via expedited review of innovative drugs, in February 2015 a senior leader of China’s State Council was appointed as the new CFDA director. In addition to assuring that appropriate resources would be devoted to expanding staff, training, and international interaction with major/regional national regulatory bodies, he reinvigorated ongoing phased reforms and was publically critical of the lack of data integrity in regulatory filings and clinical trials performed in China. This led to the development of a series of reforms that, when fully implemented, will result in a wholesale change of China’s drug review and approval process.

	Quality and priority are the CFDA guiding mandates

	The Chinese government recognizes the delinquencies in its pharmaceutical sector, but because of the size, scope, and autonomy of its country, it has chosen to phase changes in over time and establish pilot programs to test and implement corrective actions. China’s pharmaceutical industry has been selected as a key area for industrial development with emphasis on meeting global manufacturing quality standards and establishing necessary prerequisites for China to become Asia’s regional center for clinical drug development.

 illustrates regulatory reforms undertaken by CFDA over the past year to meet international quality standards.

			Figure 2: Regulatory reforms by China FDA (CFDA).			

					China FDA (CFDA) - 2015 Drive Toward Quality

	
	Current good manufacturing practice (cGMP) mandates were first initiated in 2010 with a compliance deadline of 2015. Despite vigorous actions by Chinese authorities to ensure cGMP compliance, these goals have not been fully achieved. A significant reduction in the total number of domestic pharmaceutical manufacturers unable to comply is anticipated over the coming months (11).

	In late 2015, as a harbinger of the anticipated consolidation, CFDA requested applicants to self-examine whether their applications met the required good practices (e.g., good manufacturing practices, good clinical practices, good laboratory practices). Between completed reviews and voluntary withdrawals, the multi-year backlog of applications was immediately cut nearly in half. Some 80% of marketing authorization applications were voluntarily withdrawn (9).

	Also in late 2015, CFDA implemented fundamental changes in the way new drugs are reviewed and approved. The strategic intent was to foster local innovation and ensure that truly innovative drugs receive the required level of CFDA resources for expedited review. 

chronicles the changes that CFDA has made in the Fast Track approval pathway and identifies disease areas of high medical need.

			Figure 3: Changes to China FDA fast track drug approval pathway and areas of high medical need.					

					CHINESE FDA (CFDA)-
					Changes to Fast Track Drug Approval Pathway

					CFDA-Opinions for Prioritized Review and Approval to Resolve Drug Registration Backlog

Registration applications for drugs with clear clinical value can meet one of the following circumstances:

					1.  Novel new drugs which have not been launched in or outside China.

					2.  Novel new drugs which will transfer production to China

					3.  Drugs adopting advanced formulation technologies and innovative therapeutic approaches as well as with clear therapeutic benefits

					4.  Clinical trial applications (CTA) for drugs with patents expiring in three years and production applications for drugs with patents expiring in one year.

					5.  Synchronized clinical trial applications in the US and EU

					6.  Registration applications for drug products manufactured in China on the same production line which are applying for synchronized marketing approvals in the US and EU with completed onsite inspections

					7.  Traditional Chinese medicines (including minority medicines) targeting major disease prevention and treatment with clear clinical positioning

					8.  New drugs listed in the state sciences and technology major programs or national R&D programs

Registration applications for drugs with clear clinical advantages for the prevention and treatment of the following diseases

	Upon close examination of the new regulatory changes, one can interpret acknowledgment of China’s national strategic priority of fostering an innovative and domestic pharmaceutical sector, specifically:

		Categories 1 and 5 require simultaneous global clinical development via multi-regional clinical trials (MRCT).

		Category 2 production/manufacture of the new drug in China is the only objective pathway. For injectable products, at minimum, this would require API/ABI (active biological ingredient) shipment to China with aseptic fill/finish into final product presentation (e.g., vials, pre-filled syringes, cartridges, pens, etc.)

		Category 3 is completely subjective and would most likely only be combined with one of the specified diseases.

		Category 4 appears to encourage Western MNCs to apply for Fast Track approval with products that are about to expire. Considering the limited availability of current Western products this “last bite of the apple” is ideal for first generation biologics not yet registered in China.

		Category 6 is like 1 and 5, but also mandates global production sourcing from China. At a minimum, the Chinese site would require US/EU drug master file (DMF) and onsite inspection (option as backup facility).

		Categories 7 and 8 are specific to China.

	Biological “revolution” and dominance of injectable formulation

	Of the top 10 selling drugs worldwide in 2004, only one was an injectable formulation. A decade later, seven were injectable. The significant shift reflects a realignment of product portfolios from small molecule to macromolecules and biologics, targeted to treat specialty patient populations. These new drugs are not metabolically conducive to oral or pulmonary delivery (12). Of the seven top-selling drugs in 2014, all are biological/large molecule and none will have their principal US patent in force beyond 2018 (13).

	In March 2015, the US FDA approved its first biosimilar, and China’s CFDA issued their Technical Guidelines for Development and Evaluation of Biosimilars. Currently, US FDA is advising on 58 biosimilars involving 18 different innovator drugs. While China has few biologicals registered, the Greater Shanghai region has up to 800 companies involved in biopharmaceuticals. Eyes are definitely on the future.

, of late-stage drug development portfolios, 50% of new product introductions will be injectable presentations and 47% will be biological/macromolecule. New formulations, lower volume requirements, and better pharmacokinetics will facilitate less frequent, subcutaneous administration and patient-convenient delivery devices. Pre-filled syringes and pens should help establish injectable delivery on par with oral dosage in overall acceptability and compliance. Complex upstream bioprocessing combined with ample patent coverage (12 years United States), will help protect intellectual property.

	Between the current generation of products, late-stage portfolio projects, and burgeoning biosimilar entrants, the global pharmaceutical industry is in a biological revolution, virtually all of which are injectable. In contrast, in China, with the exception of the diabetes space dominated by foreign companies, no commercial-level injectable western products are manufactured; all are imported, a non-expedited regulatory approval pathway.

	This is significant because on Dec. 1, 2015, CFDA announced a Pilot Marketing Authorization program allowing Chinese contract manufacturing organizations (CMOs) the opportunity to serve as the principal manufacturer of a pharmaceutical company’s products.

	The death of small molecules has been greatly exaggerated

	New emerging science in the 1970s helped foster the first generation of recombinant biological therapeutics. This rich vein of research was expanded with monoclonal antibodies and encompassed many products whose mechanism of action proved clinically efficacious to treat multiple disease categories. Complicated and expensive manufacturing, combined with relatively rare treatment disease targets, resulted in high costs of therapy, thus propelling the brand sales to the top of the industry league tables. Coupled with limited or no regulatory pathway for approval of generic copies to challenge proprietary brand dominance once the patents expired, the rapid ascendancy of biological/macromolecules to virtual equal status to traditional small-molecule pharmaceuticals in R&D portfolios was assured; they became the darlings of the industry.

	However, 90% of therapeutics used by clinicians today remain small molecule, including generic drugs. The reason for their ubiquitous and perpetual longevity in drug development is predicated on the simple fact that small molecules are derived via chemical synthesis, which is not restrictive like the biological pathways required in the production of large molecules. Two other characteristics that are always welcome include their high bioavailability via oral administration-approximately 80% (

	Combine these unique characteristics with advances in molecular understanding of disease progression and the personalized, often genomic-based capability of identification of optimal drug responders, a resurgence in small-molecule therapeutics is virtually assured. As evidenced by the fact that 52% of late-stage drugs in development are small molecules, small molecules are here to stay.

	Greenlighting of contract manufacturing in China

	Effective per the May 26, 2016, Chinese State Council Meeting, CFDA changes now allow foreign pharmaceutical MNCs to contract manufacture injectable innovative products in China, and qualify for the new Fast Track drug approval pathway. Considering the proprietary nature of new small molecules as well as the complex biologicals upstream manufacture of large molecules, MNC global development teams should begin planning for final stage aseptic fill/finish contract manufacturing to be conducted in China no later than Phase III. At a minimum, this will require identifying Western cGMP-level capable CMOs in China to begin at time of US new drug application/EU marketing authorization qualification with tech transfer commencing no later than at time of US FDA/European Medicines Agency regulatory filing(s).

	This “reformation” of China’s drug regulatory laws and the specific mandates of the new Fast Track pathway means the CFDA is no longer intent on companies delaying or postponing the introduction of clinically innovative products for the Chinese people.

	With 1.4 billion healthcare consumers, China is larger than North America, South America, and the European Union combined. With annual pharmaceutical sales growth rate of more than 21% for 2007-2012, China is the world’s second largest market, behind the US. Even with China’s economic slowdown in 2015, the annual growth rate is a healthy 6.6%, vs. a global average rate of 1%, and is projected to grow at up to 9% through 2020 (15).

	With the future of pharmaceuticals having transitioned toward injectable biologicals and China offering the most promising opportunity for market growth of any geographic region, injectable manufacturing of global products in China to source the Chinese market is assured. To compete in this resource-intensive manufacturing process requiring large volume capacity and a technically trained labor force, pharmaceutical companies will logically turn to contract manufacturing in China to meet strategic sourcing requirements.

, Goldman Sachs Report (January 2016).
	2. K. Schwab, “The Fourth Industrial Revolution, What It Means, How to Respond,” World Economic Forum (Jan. 14, 2016).
	3. WuXi Global Forum: A Celebration of Partnerships: Session III China the New Horizon Panel Discussion moderated by Greg Scott, ChinaBio, JP Morgan Healthcare Conference (San Francisco, Jan. 12, 2016).
	4. M. Tirrell, “

JP Morgan’s Big Health-care Confab: What to Expect

,” Jan. 8,2016,  accessed June 13, 2016.
	5. The World Bank, 

Healthcare in China: Entering ‘Uncharted Waters

,’ McKinsey & Company (November 2012).
	7. B. Shobert, Lost Generation of New Products, WICON, Pharma China (Feb. 2, 2016).
	8. IMS Healthcare (research data).
	9. 

Press Conference with Chinese FDA (CFDA) Director Bi Jingquan,

, accessed June 13, 2016.
	11. N. Gray, “China’s next big move to bolster domestic drug industry: Market Consolidation,” 

 (Feb. 16, 2016), accessed June 5, 2016.
	12. A. Philippidis, “The Top-25 Best-Selling Drugs of 2014,” Genetic Engineering & Biotechnology News (Feb. 23, 2015).
	13. United States Patent and Trademarks Office (USPTO).
	14. Y. Cohen, “Small Molecules The Silent Majority of Pharmaceutical Pipelines,” 

, Nov. 23,2015,  
	15. J. Shen, “Confronting Healthcare Challenges in China,” Pharma China Annual Forum, Shanghai, China (March 18, 2016).

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	When referring to this article, please cite it as D. Deere “Regulatory Reform in China Creates Opportunities," 

Pharmaceutical Technology Outsourcing Resources Supplement 

Quality, innovation, and new approval pathways open drug development options for the Chinese market, including injectable contract manufacturing.