China`s growing presence in the global supply chain



China`s growing presence in the global supply chain
China’s growing presence
in the global supply chain
Shannon Bennett
API Intelligence Thomson Reuters, 215 Commercial Street, 5th Floor Portland, ME 04101, USA
China; supply chain; active pharmaceutical ingredients
China has become a top sourcing destination for low
cost commodity products. Through supply agreements
with foreign companies Chinese – made APIs and
intermediates have been integrated into the global
supply chain. Contrary to a popular misconception,
finished dose products from China are only just
beginning to arrive on the USA market. In an effort to
improve quality, environmental protection and market
growth, the Chinese government has taken action by
implementing new GMP and environmental regulations.
However, these initiatives come with increasing costs
that may impact the advantages of sourcing from
Thomson Reuters has assessed the capabilities and experience of
API manufacturers according to a proprietary scheme based on
objective regulatory data, ranging from “established” (those that are
experienced in supplying highly regulated markets) to “local” (those
capable of supplying only their domestic market or less regulated
countries). Over time, as companies gain more experience in
regulated markets by investing in facility improvements and upgrades
to increase their product portfolio, they will move up in the rankings.
According to figures developed by Thomson Reuters API Intelligence,
over the past seven years the number of Chinese groups capable
of supplying APIs to regulated markets has steadily increased.
Between 2004 and 2011, the number of established manufacturers,
like Zhejiang Hisun, increased from 8 to 13. During that same period,
the number of less established companies, like Jiangsu Hansen, with
less of a track record, either in terms of the length of their history
or number of products supplied to regulated markets, more than
tripled from 11 to 37. The number of groups designated as “potential
future” due to their interest in supplying to regulated markets but
which have limited or no known performance jumped from 44 to
161 (Figure 1).
hina has become an increasingly important player in the
global pharmaceutical supply chain. The availability of a
wide variety of intermediates, low cost base, large talent
pool and good infrastructure has made China a preferred sourcing
destination for low cost commodity products for a number of
pharmaceutical companies.
Foreign companies in pursuit of cost advantages and access to local
and emerging markets are partnering with China-based companies.
Janssen has had a supply arrangement in place with Chongqing
Huapont since the early 1990s; additionally, supply agreements exist
between Boehringer Ingelheim and Hisoar (2008) and Novartis and
Zhejiang Huahai (2011) for active pharmaceutical ingredients (API)
and intermediates. Through these and other supply arrangements,
APIs and intermediates sourced from China have been integrated
into the global supply chain. However, finished prescription
medications made in China are only just beginning to arrive on the
USA market.
Thomson Reuters is currently tracking over 1000 API manufacturers
in China. However, only about 20 percent of those companies are
capable of supplying regulated markets. For a number of years,
chimica oggi/Chemistry Today - vol. 30 n. 1 January/February 2012
Figure 1. Chinese company growth comparison.
Source: Thomson Reuters Newport Premium.
These figures indicate that Chinese manufacturers are looking
to move up the global API supply chain by investing in facility
upgrades with an increased focus towards meeting international
Good Manufacturing Practice (GMP) guidelines and regulations.
However, more than 80 percent of the manufacturers in China
today are either not capable of supplying to regulated markets
or have chosen to focus on the local patient population. Even
those companies that are locally focused have to follow GMP
guidelines; due to the number of health scandals attributed to substandard Chinese products, China has faced intense domestic and
international pressures to improve its quality control standards.
China introduced a revised version of the Chinese
Pharmacopoeia (ChP) in October 2010, replacing the 2005
edition. The new ChP included many new and revised drug
monographs and was also updated to capture advanced
technologies and experimental methods widely adopted
abroad for international drug quality control.
In early 2011, it was reported that the Chinese government
planned to invest up to Y5 billion (€542 million) to build up
capabilities to produce APIs for drug makers in western
countries. Additionally, in an effort to improve quality and
environmental protection, the Chinese government has
taken action by implementing new GMP and environmental
regulations. The Chinese State Food and Drug Administration
(sFDA) introduced a revised set of GMP regulations in March
2011. In comparison with the first GMP regulations released by
the sFDA in 1998, these provide more detailed requirements
on key aspects of the drug manufacturing process and
are modelled on the standards set forth in the EU and USA
including the concept of total quality management.
The Chinese government is allowing five years for companies
to reach compliance with the new GMP regulations.
Achieving total quality management could be a problem
for larger Chinese groups with multiple sites, as typically
each site has its own set of standard operating procedures
and generally there is no uniformity or information sharing
across sites. Further, companies that cannot afford the
investment needed to comply with more stringent GMP and
environmental compliance regulations will close.
For many companies standard sourcing challenges in China
remain; those include remote project management, lack
of senior level expertise in quality control management,
language barriers, and corporate cultural differences with
focus on short term rather than long term returns. The expense
of sFDA compliance and the rising costs of labour and raw
materials compounded by other sourcing challenges may
ultimately impact the advantages of sourcing from China.
Table 1: ANDAS for prescription generic drugs (US, EU, INDIA, CHINA)
Source: Thomson Reuters Newport Premium
*Of the 13 ANDAs, 9 were acquired while 4 were developed in china
Thus far, Chinese companies have limited experience in
supporting patent challenges for drugs still under patent
Another misconception is that APIs are being commonly
sourced from Chinese manufacturers that have not been
inspected by the US Food and Drug Administration (FDA).
While many Chinese groups are submitting a growing number
of Type II US Drug Master Files (US DMF), the submission of
a US DMF does not necessarily mean that a manufacturer is
supplying API to the USA market. The FDA will only review a
US DMF when it has been referenced in an ANDA or a new
drug application. The FDA neither approves nor disapproves
The number of US DMF submissions by Chinese companies,
in comparison to the number of FDA inspected facilities in
China, is quite high. However, it is important to remember
that API manufacturers cannot supply APIs to the USA unless
they have been approved by the FDA. Although, as the
heparin scandal demonstrates, mistakes do happen and
those can have grave consequences. In February 2008, the
FDA admitted that the Chinese facility supplying the tainted
API was never inspected because the name entered into the
FDA database was confused with another similarly named
Data collected by Thomson Reuters API Intelligence identifies
127 Chinese manufacturers that have been inspected by
the FDA. Prior to 2005, the FDA had inspected 31 Chinese
manufacturers; the FDA has since completed 96 additional
inspections of Chinese facilities (Figure 2).
The heparin scandal helped to ignite the general
misconception that tainted prescription dose medications
are being sourced from China. In the case of heparin, the
finished dose was manufactured with contaminated active
ingredients imported from China.
The number of abbreviated new drug applications (ANDAs)
associated with Chinese manufacturing sites today is low but
we expect this to change over time. Companies like Zhejiang
Huahai have manufactured finished dose products for the
USA market under contract manufacturing arrangements.
Many of the ANDAs belonging to Chinese companies
today were developed by companies with lengthy USA
presence like Ranbaxy, Par and Actavis. While we expect
new ANDA holders to move manufacturing to China in
the future, currently some of these products are still being
manufactured in India, Europe, or USA.
The number of ANDAs for prescription generic drugs
developed in-house by Chinese companies pales in
comparison to the number of approved ANDAs belonging
to companies in the USA, EU and India. Currently, four
Chinese groups hold a combined 13 ANDAs with final US FDA
approval (Table 1).
The few ANDAs belonging to Chinese companies are mainly
for products with generics already launched in the USA
such as Secan Pharmaceutical’s approval for amlodipine
besylate and Huahai’s approval for losartan potassium.
Figure 2. No. Groups with DMFs compared to No. FDA inspected
Source: Thomson Reuters Newport Premium.
The number of COS, just like US DMF filings, belonging to Chinese
companies has increased steadily since 2000 (Figure 3).
Unlike in the USA, where the FDA reviews DMFs only if they are
referenced, the European Directorate for the Quality of Medicines
(EDQM) reviews all Certificates of Suitability (COS) and grants a
paper approval.
Over the past few years EDQM has suspended a number of
certificates for APIs made in China because manufacturers
failed or refused inspections. In some instances, certificates were
suspended because EDQM inspectors discovered that APIs were
being produced at secondary sites, often referred to as “shadow
factories”, that were not in compliance with GMP standards and
were not cited in the COS application.
chimica oggi/Chemistry Today - vol. 30 n. 1 January/February 2012
Figure 3. Number of COS and US DMF filings by Chinese companies
Source: Thomson Reuters Newport Premium.
So far, the US FDA offices in China have mainly focused on food
safety issues and providing GMP training rather than conducting
inspections of API and finished dose manufacturers. Going
forward global supply chain relationships may benefit from the
harmonization of quality management standards being explored
by the FDA, Australia’s Therapeutic Goods Administration (TGA)
and the European Medicines Agency (EMA). Harmonization
of quality management standards among these agencies
could provide more oversight and reduce costs by relying on
inspections of foreign facilities by fellow regulatory bodies.
Currently, the FDA lacks the appropriate resources and
funding to conduct overseas inspections in a timely
fashion. However, pending Congressional approval, the
generic drug user fee act (GDUFA) is directed at using
those fees to support the FDA’s foreign inspection efforts.
The proposed fees will consist of four types of fees broken
into two categories; application fees and facility fees. The
application fees will include a one-time ANDA backlog
fee for ANDAs pending on October 1, 2012. It is possible
that ANDA filers will withdraw their ANDAs prior to this date
to avoid paying the backlog fee and instead resubmit
their ANDAs with an original ANDA and Prior Approval
Supplement fee which is estimated to be less than the
backlog fee. Type II DMF filers will be charged a “first
reference fee” should their DMF be referenced in an ANDA.
A facility fee must be paid by both finished dose form (FDF)
and API manufacturers; foreign FDF and API facilities will
pay a fee differential to supplement the added cost of
overseas inspections (1).
It remains to be seen how these proposed fees will affect
Chinese companies interested in entering the USA supply
chain. The costs may limit the number of companies focused
on pursuing the USA finished dose market, instead preferring
to invest in the rapidly growing local Chinese finished dose
market. At the same time, it is also possible that GDUFA
will speed up the entry of additional Chinese finished dose
products since currently a number of supplemental filings
covering the move of manufacturing to China, are part of
the backlog.
K.R. Karst, FDA Law Blog, 22 Sep 2011.

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