Focus On China Part One: China Pharma Market Thinks Outside the Box and in the Zones
Over the last 30 years, China’s growth has been fuelled in part by the rapid and dynamic development of its industrial parks (a.k.a. development zones). Significant investment in both physical and administrative development in these zones has allowed industry to flourish, bringing about success for both domestic and international companies.
One such industry where this change is keenly felt is pharmaceuticals. Since 1984 when pharmaceutical giant GlaxoSmithKline (GSK) established its first China joint venture (Sino-American Tianjin Smith Kline & French Laboratories Ltd.), industrial zones in China have been able to provide the conditions for success for the world’s most powerful and innovative pharmaceutical companies.
Tianjin, where the Tianjin Economic-Technological Development Area (TEDA) is based, is one of the biggest cities in Northern China. TEDA, 28 years old now, has also been named China's top industrial zone every year by the Ministry of Commerce since 1998.
It is no coincidence that, in 1995, GSK established SmithKline Beecham Co., Ltd. in Tianjin. Toward the end of 2012, Lundbeck, a Denmark-based pharmaceutical firm, invested U.S. $9.5 million to open a modest-sized facility in the same city.
But how can this industrial zone continue to attract the best and the brightest within the pharmaceutical industry, given the challenges and high standards required by these companies to maintain success over time?
In recent years, perhaps the biggest challenge has been to overcome the problems of the global financial crisis, and how this makes a variety of companies and industries more reluctant to invest. Whereas traditionally an industrial zone might focus on attracting big name companies to invest, with the dip in the market this was not always possible. Instead, there has been a shift to developing the entire industrial chain, making it easier and more attractive for companies to invest in a region.
TEDA’s biopharmaceutical industry chain is extremely well developed, with 396 enterprises providing medicine manufacturing, medical equipment production and services. Most of the foreign-invested firms focus on manufacturing, whereas the domestic firms are engaged in R&D innovation and production. This has helped to create synergies between large companies such as GlaxoSmithKline, Novo Nordisk, and Novozymes, as well as device or manufacturing companies such as Hannah. There are also CROs such as Wuxi AppTec, and even traditional chinese medicine manufacturers engaged in innovation within TEDA. More importantly, an industry biotech chain has been formed that includes research and development, technology transfer, production, business logistics, and tradeshows. As pointed out by Mads Kronborg, PR manager for Lundbeck, “We chose TEDA because the actual facilities of the site met our technical and strategic requirements. Also, the industrial park hosts a number of other multinational pharmaceutical companies thereby forming a ‘hub.’”
Synergies are particularly important in the pharmaceutical industry to push forward innovation. For example, TEDA has companies such as Tianjin Jin Yao Group Co., Ltd and Wuxi AppTec that are the first in the country in terms of innovations in corticosteroids and pharmaceutical R&D respectively. Combined with a wealth of foreign investment and the annual 200 million yuan budget of the TEDA Bio-pharmaceutical Industry Fund, it seems the future will bring an improved investment environment with greater emphasis on specialization and segmentation for all areas of the biotech industry.
Investment zones are attractive to global pharmaceutical brands also because of advanced infrastructure and opportunities of proximity. For example, in 2012, Tianhe-BGI Bioinformatics and Computing Joint Laboratory was launched in the Binhai New Area. The JV uses the Tianhe-1A, the world's second fastest supercomputer, to research biological sciences, doing human genomics association studies in 3 hours that used to take more than 300 days.
After all, it is cutting-edge research that really drives pharmaceutical and biotech growth. Thus far, over 200 million yuan investment has been made on pharmaceutical research alone in TEDA. By 2015, there are expected to be more than 50 R&D institutions in TEDA, with investment in research expected to account for 10% of total revenues. These innovations are already taking place in research institutions such as Tianjin Industrial Biotechnology R&D Center, Chinese Academy of Sciences (TIBC, CAS), and Tianjin Institute of Pharmaceutical Research (TIPR). This is further bolstered by the clinical bases that surround the area, with 60 A-level hospitals in the Tianjin and Beijing region with a wide variety of specializations.
Indeed, such clinical advantage in China has been one of the driving forces drawing many global pharmaceutical brands to China. Cost efficiency, strong intellectual capital, and adoption of international standards in good clinical practice have all helped usher in a better environment for clinical research in the country.
Quintiles is a CRO providing a wide range of clinical research services for biotech and pharmaceutical clients all over the world. When asked about the “coopetition” with the domestic firms in China, Jay Johnson, Quintiles’ senior director of corporate communication, Asia Pacific, said, "We work with many companies that are doing drug development in China, either for the purpose of registering products for sale in China, or as part of multinational clinical trials aimed at approval in multiple countries."
The benefits of regional collaboration are echoed by Daniel R. Marshak, Ph.D., SVP & CSO at PerkinElmer. He says, “A newer trend we’re seeing take hold is more around resource collaboration. For example, a European company that has several promising candidate molecules that it would like to explore, but cannot develop all of them simultaneously. Now the company can partner with local pharmaceutical companies to outsource part of the R&D and testing through collaborations or partnerships.”
“This is enabled in part by the informatics tools that allow information to be discovered, shared and protected,” Marshak explained. “For example, electronic laboratory notebooks (ELNs) that can be shared safely across companies and geographies have been critical to allaying concerns about IP protection and global management of drug discovery and development.”
Despite the successes, there are challenges, mainly surrounding the quickly changing demands of the industry and the need to maintain levels of growth and investment in innovation, while also battling the constraints of regulation.
“A challenge often associated with high-growth industries is the friction created between organizations that want to innovate quickly, and regulators that want to ensure public safety is utmost at all times. We are seeing this with the recent emergence of the Chinese biotech and biopharmaceutical industries, who are innovating amidst newly defined regulatory processes. Chinese authorities are looking to develop these nascent domestic industries, and are looking to European and American models to help shape their own,” says Martina Bielefeld Sevigny, Ph.D., VP and GM of PerkinElmer Life Sciences Technology, China.
And this is where China’s development zones have a strategic advantage. These zones are authorized to streamline the entire approval procedure pipeline. For example, TEDA is sanctioned to expedite its investment partners' sample testing, customs inspections and quarantine, as well as arranging tariff exemptions for equipment imports. While this does not mean drug approval is easier, as standards are still extremely strict, it does mean that unnecessary delays and bureaucratic barriers do not interfere with innovation.
About the authors:
Mr. David Friesen, a writer and editor, has been living in China since 2005. His current roles include managing editor of China-Britain Business FOCUS, copy editor for LittleStar magazine and contributor to Global Times and CKGSB Knowledge.
Mr. Abe Sauer has written for Ad Age, Esquire, The Atlantic and numerous other magazines and books. He first came to China in 1987 and later studied at Beijing University.