The Latest On China And Biopharma

by: Derek Lowe

This article was originally published October 30, 2017.

China’s impact on biopharma has been a perennial story in the press (and on this blog). The big picture has been the interplay between the “China as a source of cheap scientific labor” story, the “Big Western drug companies setting up divisions in China” one, and “When will China have its own research-driven drug industry?” All of these have gone through cycles. The cheap-labor one has seen costs rising as Chinese wages and expenses have gone up (and also the efforts by some of the larger companies to either justify those costs by providing higher-level services and/or to keep their own costs down by moving operations to less expensive parts of the country). The China’s-own-drug company one is illustrated by this blog post from 2010 and this one from earlier this summer.

As for the Western drug companies in China story, though, here’s the latest chapter: several of the organizations that put significant money and resource into their Chinese operations have been scaling back. Things have not worked out on the more optimistic projections, and China as a whole is still well below its potential:

Among the top 12 countries contributing to global pharmaceutical research and development in 2015, China accounted for 4 percent, while the U.S. contributed almost 50 percent, according to a report published last October by four industry groups. Of the new molecules discovered from 2007 to 2015, 2.5 percent came from China, compared with 56.3 percent from the U.S.

In the past, “big pharma” anticipated it could benefit from “large supplies of raw talent coming out of universities,” said John Wong, chairman of greater China for Boston Consulting Group. Among the local R&D activity in China, “there is a little bit of innovative work, but this is also largely copycat. So, the promise of a large talent pool and lower-cost R&D has not really delivered."

That’s not to say that there aren’t good scientists in China – there are plenty. But China’s situation is different from most other places in the world, and (to be sure) no one knows quite how to grow innovative R&D industrial sectors from scratch, anyway. (If anyone did, there would be more of them).

The article suggests that there may be more happening on the development side than on the basic R&D side, and honestly, I think that’s always been the case. The basic research stuff tends to get more attention, both from an internal Chinese national pride aspect and (on the other end) from the “Oh God, here they come” attitude that some people have outside the country. But China’s internal drug market is (from a financial aspect) the big story, and late-stage development, regulatory affairs, and so on are the big components of it. It’s not as compelling a narrative – just more people coming in and trying to sell things in the Chinese market – but it’s probably the main one for now. The Chinese government is in the middle of a big plan to overhaul the entire drug-approval and regulatory system, and everyone inside the business will be paying a lot more attention to that. Reforms, by the way, are very much needed, from the looks of things, but the effectiveness of the new proposals will have to be judged by results.

Meanwhile, on the early stage R&D end of things, the rise of China’s endogenous biopharma industry is already well behind some of the earlier predictions, and given the uncertainties about the new drug approval process, it’s not going to be possible to make meaningful guesses about it for a while yet. As has been the case for years, the situation includes large numbers of scientists, many of them very hard-working and talented indeed, along with a good deal of money, a government that simultaneously wants to see a successful industrial sector develop but also wants to keep their hands on it while it does so, and foreign companies that are simultaneously attracted by and fearful of the situation. Add to that the growing pains of Chinese research in general – the literature coming out of there can be problematic, as the authorities themselves realize, and there are persistent quality-control problems with things like cell lines and reagents. A very wide range of outcomes are possible, given all these factors. Anyone involved in these efforts (or just investing in them) had better be lively and flexible. It won’t be dull.

Update: As pointed out in the comments, there’s another possibility in play: A Chinese company buying out a Western one. This is already happening in other areas, and is worth watching for.

Disclosure: None.