Pharma Focus Asia
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Outsourcing opportunities in China

William Xia Guo, Chairman and CEO Venturepharm Group

The global pharma industry is increasingly outsourcing its production processes to service providers in developing countries. China is a major target due to its lower cost structure. William Xia Guo, chairman and CEO of Venturepharm Group explains how his company aims to become one of the leading providers of drug development outsourcing services.

The global pharma industry is facing many challenges. One of the most important has resulted from the loss of sales to generics due to the best-selling blockbuster drugs going off patent. From 2001 to 2006, around 40 blockbuster drugs, with combined annual sales of $45bn, will go off patent in the USA. These include Merck's Zocor (off patent in 2005; annual sales of $2.8bn), Takeda-Abbot's Prevacid (off patent in 2005; annual sales of $3.1bn), and AstraZeneca's Losec (off patent in 2001; annual sales of $4.6bn).

In order to strengthen its drying product pipelines, the global pharma industry has to conduct more R&D activities in drug discovery. Moreover, the regulative environment has become more intense as the FDA looks to impose more stringent safety standards in approving new drugs following the Vioxx case.

The pharma industry desperately needs to bring down the costs of drug discovery, and outsourcing has become one of the most favoured strategies being adopted worldwide. The most important cost-benefit of outsourcing is that the major pharma companies can outsource processes related to biology, chemistry, screening, lead optimisation and manufacturing. Herein lie the opportunities for companies focusing on contract research in drug discovery.

According to Intercontinental Medical Statistics (IMS), among the 65 billion finished dosage forms, 7.5-10 billion were outsourced for manufacturing, and of the 3 billion development dosage forms, around one third was outsourced.

Outsourcing Choice

As R&D and manufacturing costs become higher, the world turns to the two developing giant countries, China and India, for outsourcing. There are many reasons for making China the outsourcing country of choice.

First, China's pharmaceutical industry has developed at an average rate higher than the rest of the world. According to SFDA, the market is expected to grow to RMB800bn in 2010, a RMB600bn increase from 2000. Second, China's lower cost structure means related cost reductions down the line. Third, China's culture shows more tolerance of the animal studies, and efforts are being made to standardise its animal experiment regulations. Fourth, China has a large selection of professional intellectuals. Each year, thousands of universities and colleges prepare millions of graduates of high quality to enter the labour market, and this is supported by the many overseas Chinese professionals returning home.

However, there are some concerns regarding outsourcing to China. First, intellectual property (IP) protection. Second, overseas pharmaceutical companies worry about the current quality of R&D, since the SFDA standards are new to the Chinese pharmaceutical industry. Thirdly, language and culture difference could create a barrier to the success of cooperation or alliances.

Despite those concerns, China remains one of the most attractive countries for global pharma outsourcers, according to Forbes magazine: 'In the near future, China will become the main force in the world pharmaceutical market.'

China's pharmaceutical industry has undergone a number of changes. Based on the message from Forbes, it is increasingly clear that outsourcing and drug development is the heart of the pharmaceutical and biotech companies, and is growing at a yearly rate of 15 to 20 per cent.

Overcoming Challenges

There many challenges facing the participants of the global drug discovery contract research markets. Among them are credibility, culture fit, strategic fit and the ability to move up the value chain.

Since outsourcing involves proprietary knowledge and high quality work, global sponsors of drug discovery contract research prefer working with the same companies in the market as long as the price is right. Outsourcing companies searching for revenues from drug discovery contract research would be at an advantage if their credibility is in place. Usually, the credibility of a contract research player is revealed through its past track-record including contract research work carried out such as the type of work, sponsors involved and quality of work done. Credibility of new entrants rely more on the technical skill-sets of people, research expertise and the track record of the scientists undertaking the project.

Contract research usually involves two participants that are different in terms of size and country. The outsourcer is usually a large global pharmaceutical company from a developed country, while the outsourcing service provider tends to be a small or medium-sized pharmaceutical company from a developing country. Add to these, elements such as language difference, infrastructure and living standards, the combination may result in culture conflict if not handled properly.

The increasing pressure on pharma and biotech companies to improve research productivity requires more strategic relationships being formed between the sponsors and contract research companies. The test for strategic fit is to see whether there is long-term synergy between the outsourcer and the contract research service provider. The value of such a strategic fit is highly valued today with many companies looking to add research capabilities through their contract research partnerships. To be successful, the contract researchers must ensure that they strategically fit the outsourcing requirements of global biotech and pharma majors.

Traditionally, most drug discovery contract research work involved laborious chemistry-related work. With the explosion of technologies such as biotechnology and drug discovery, today, more pharma and biotech companies are outsourcing drug discovery technologies that are moving up in the value chain. In terms of dollar revenues, a company with a proprietary technology gains more weight in forming an alliance with a global outsourcer to contract the technology out instead of working on chemistry-related contract research work at the lower end.

Meeting Outsourcing Opportunities

Many pharmaceutical companies operating in China have adjusted to providing outsourcing services. Among them, Venturepharm is an outstanding participant. Venturepharm is a leading provider of pharmaceutical services that include API and formulation development, clinical trial, product registration, manufacturing, sales and marketing. Venturepharm was recently valued by Fortune magazine as one of five most promising companies in China.

Venturepharm's R&D outsourcing strategies are focused on generics, speciality and innovation. In the R&D short-term, Venturepharm focuses on innovation rather the invention, improving the version of marketed compounds. In the R&D long-term goal, Venturepharm strives to create a series of new drugs.

These strategies contributed to the achievements made by Venturepharm include:

  • An R&D pipeline that contains over 400 new products approved, pending or under development for over 13 therapeutic areas, targeting over 10 billion product sales in China
  • Over 70 patent applications have been files
  • Seven VSmart proprietary drug delivery system platforms have been created

Another important strategy of Venturepharm is its ability to move up the value chain. Its drug discovery contract research work not only provides chemistry-related work, preclinical studies, formulation and clinical trials, but it is also looking to move up to more lucrative areas such as the discovery of new chemical entities (NCEs). Venturepharm has six NCEs that constitute the platform for cooperation or alliance in a higher profile.

Venturepharm's service model is a one-stop shop with a full range of services for adding more value to clients, from R&D to marketing and sales. Venturepharm also has a business model of franchises of Venturepharm-Mart, in which around 1000 marketing agencies over China can make h3 alliances. This new business model redefines the Chinese marketing and sales service system.

With China now a major target for outsourcing service due to its lower cost structure, the Venturepharm Group is aiming to fulfill its vision as the leading provider of drug development to the global pharmaceutical industry.

Author Bio

William Xia Guo
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