Challenges and Opportunities of Chinese CRO/CMO Industry

Since 2015, Chinese NMPA has carried out a series reforms in drug approval process and produced a number of policies, such as requirement of GCE (Generics Consistency Evaluation) in generic drug approval, establishment of MAH system, joining ICH, automatic approval of IND application within 60 days. The implementation of these new policies has brought fundamental changes to the Chinese pharma industry. As the new policies encourage the new drug discovery and development, while raised bar for generic drug approval, the hot money poured into new drug research, generic drug companies are forced to look for ways out of the difficult situation. As major work force in drug R&D, CROs and CMOs in China are benefiting from the situation on one hand, but also face challenges. We would like to discuss those challenges and opportunities in the article.

Following is the list of changes caused by the new policies and opportunities for CROs/CMOs：

1. Due to the new requirement of GCE (Generics Consistency Evaluation) in the generic drug approval process, followed by “4+7” (4 directly controlled municipalities by central government + 7 major cities) group purchase policy, which is considered the first stage of national purchase of drugs to lower the cost of medicine. Because of severe competition and price control, Pharma industry in China is undergoing reshuffling process and many of 6000 existing Chinese pharmaceutical companies will eventually disappear. Some of these generic drug companies are forced to start new drug research and development, which creates business opportunities for the CROs and CMOs.

2. Joining ICH, implementation of MAH (Marketing Authorization Holder) policy, automatic approval of IND in 60 days and a series of new policies to speed up the drug approval process have stimulated broad interest in new drug discovery and development.

3. The new drug research related business is booming and government/private capitals are pouring in. In addition to the huge number of start-up companies, the leading generic drug producers in China are also making large investment in research and development of new drugs. As the result, the number of IND application in China manifests an explosive increase in recent years.

4. Most of those start-up companies adopt virtual operation model and taking the advantage of CROs/CMOs who has the capabilities and capacities in drug discovery and development and doing so in an effective and economical way. Those generic drug manufacturers who want to start new drug discovery but lacking R&D capabilities are also looking for help from CROs.

5. While the demand for service is high, the CROs/ CMOs are facing challenge of upgrading the capabilities and capacities. A number of CRO/CMOs went to IPO for fund raising in recent years, including Wuxi Apptech, Pharmaron, Viva, Frontage, Medicilon etc..

As the result of the new development in Chinese pharma industry, CROs and CMOs in China are also facing some challenges:

1. As the reform continues in NMPA, particularly after China joined the ICH, the higher standard has been accepted but detailed regulatory policies in China have not yet fully published. Therefore, the Pharma companies are reluctant to push the project ahead, particularly to set the drug development strategy.

2. CROs/CMOs need to update and upgrade the hardware and software to meet higher ICH standard. This is not just limited in hardware/equipment upgrading, the addition and revision of policies and SOPs and subsequent training/ implementation will also take place, which requires time and money.

3. New drug research and development requires collaboration of multiple scientific disciplines such as Biology, Medicinal Chemistry, Pharmacology, ADME, Process Chemistry, Formulation and Regulatory etc. The booming business in new drug discovery and development has created shortage in manpower of expertise, specialists and professionals. This has become a major problem cross the industry in both CROs/CMOs and pharma companies

4. The environmental requirement and standard are becoming more and more stringent in China, the cost of the waste treatment has been tripled and quadrupled in the past a few years. Chinese has ordered all API manufacturers who are located within 1 km distance from a major river to closedown/relocate; any ones that’s within 5 km of the a major river is forbidden to expand or upgrade in capacities. Some local government in well-developed area such as Jiangsu province is no longer giving out license for new API factory construction altogether.

In the past five years, Chinese pharma industry has experienced tremendous impact as central government introduced a number of new policies in drug approval process. CROs/CMOs are facing challenges and opportunities. We believe the fundamental changes are good for Chinese pharma industry and are also good for the development of CROs and CMOs in China as a whole. Moving forward, we believe that Chinese pharma industry, with help from CRO and CMO, will be going through fast track next decade and will catch up with the most advanced country in the world in term of pharmaceutical research and development.