With trailblazers India and China leading the way, Asia is the hot pick for bulk manufacturing and, increasingly, clinical trials and R&D. Jim Banks looks at the competition for market share and the race to find the best regional and international partnerships.
From small, mature markets like Hong Kong to large, booming markets such as India and China, Asia's pharmaceutical sector is expanding at a rapid rate. Currently, the total pharma market in Asia is estimated at around $21bn, but this has more than doubled in the last ten years, and many feel it will do so again in the next decade.
However, the most significant factor shaping these markets remains constant; multinational pharma companies are seeing investment opportunities that are proving hard to resist, whether in sales or manufacturing. For many countries in the region, foreign investment in bulk drug production - and, increasingly, in R&D and trials - continues to flow in. Whether the appeal is lower cost or, as is often the case in India, greater sophistication and capacity, major international pharma companies continue to see great opportunities in Asia.
India, for example, remains one of the world's top five destinations for global pharma companies seeking APIs and intermediates. Frost & Sullivan estimates that in 2004 India's total production of bulk drugs and intermediates was worth $2bn, as much as 70 per cent of which was for export. "Indian partnerships in APIs and formulation development offer well-established reverse engineering skills, proven expertise and inherent cost advantage,"explains Aditya Sapru, partner at Frost & Sullivan (India). Contract research, clinical trials and custom synthesis are also starting to take off in India, but there are a number of challenges ahead, particularly raising standards and building greater confidence in the industry as a whole.
Collaboration and Coordination
Singapore has already succeeded in attracting R&D and clinical trials work, and is increasingly becoming a regional hub for global pharma companies active in Asia-Pacific, as well as larger regional firms. German firm Schering is one of the many companies to have set up their Asia-Pacific headquarters in Singapore, including new offices in the Changi Business Park. Known for its expertise in fertility control, Schering plans to carry out all its clinical trials in Asia. The Singapore office will manage all of these activities, as well as its regional sales, which in 2004 totalled $316m.
"With our new headquarters in Singapore we are well positioned to serve the family spacing needs of women in Asia," says Klaus Wulf, managing director of Schering Asia-Pacific Pte Ltd.
"We see a new generation of women in Asia contributing to vast changes and economic growth in this region. They are increasingly well educated, career-driven and mobile, and they are important contributors to their country's economy as well as their individual families. Singapore, with its global biomedical sciences hub, is a springboard for the Asia-Pacific market."
The efforts of Schering and others to move their clinical trials operations to Asia are a good indication that this market is seeing rapid growth. Around 70 per cent of clinical trials samples originating in Asia are sent to Singapore for testing before being sent on to the USA.
South Korea is seeing more investment from multinationals, which now compete on a more level playing field with domestic companies, although high patent premiums and pricing issues have slowed growth in the size of the domestic market.
In Taiwan, the pharma market is shaped by the presence of over 100 generic drug makers, and multinational companies have had the lion's share of the market for some years.
Thailand has recently seen plenty of new investment from abroad. Kirin Brewery Co, for example, has recently established a wholly owned drug sales unit, Kirin Pharmaceuticals Thailand, to boost the performance of its pharma business in the region.
Regional collaboration is also likely to become increasingly common, as underlined by the recent launch of a pharma commercialisation venture by global pharma services companies Interpharma Asia-Pacific and Quintiles and Asian investment firm Temasek. With a combined fund of $112bn, the partners are likely to invest equally in the joint venture, drawing on their cumulative industry expertise and contacts to acquire new drugs from R&D companies and target the specific needs of the Asia-Pacific market.
The ultimate goal is to give R&D in the region a boost, allowing R&D companies to focus on their core activities. PharmaLink, Interpharma's marketing department for Asia-Pacific, will assist with the acquisition of new products. 'Interpharma has been in Asia-Pacific for more than 60 years and operates in 13 countries in the region," says Fritz Horlacher, chief executive of Interpharma. 'We believe that we will be able to actively apply our experience and knowledge of local Asian markets. We all share a common vision of the exciting growth opportunities in the Asia-Pacific healthcare environment."
China Gaining Ground
Part of the key to Singapore's success as a regional hub, beyond its mature economy and high GDP, is its proximity to India and China, both key destinations for global investors. The same is true of Hong Kong, which acts as a trade gateway with China.
As we have seen, India is an established outsourcing destination for the pharma industry, but China is rapidly emerging as a major competitor, particularly in the bulk manufacturing market. Domestically, it is the world's fastest-growing pharmaceutical market, and at present around 30 per cent of domestic demand is met either by imported products or by drugs produced locally by joint ventures involving foreign participants.
It is also an increasingly accessible market since WTO membership required the Chinese Government to introduce regulations cutting tariffs and liberalising domestic distribution. Reform of the drug administration laws has also paved the way for faster product registration.
In addition, China is beginning to comply with the WTO's TRIPS agreement, which stipulates that intellectual property rights (IPR) must be protected. This follows a similar move in India, where IPR is seen as vital to encouraging greater levels of foreign investment and more sophisticated service provision. China is also putting in place a patent linkage system, addressing the retail costs of drugs by making the distribution network more efficient, and continuing to look closely at its healthcare system in the wake of 2003's SARS epidemic.
With this increased focus on healthcare, the world's largest population and a rapidly growing economy, China represents a major opportunity for international pharma companies. However, with its low labour costs and plentiful workforce, it is also becoming a force in drug manufacturing and pharmaceutical outsourcing in its own right.
It has recently emerged that Chinese companies are aggressively pursuing drug master filings (DMF), which are submitted to the FDA to provide confidential information about facilities, processes or articles used in the manufacturing, processing, packaging and storage of human drugs. Twenty-five filings were posted in Q1 2005, compared with nine filings in Q4 2004. This suggests that these companies are more interested in competing in the generics market than they were previously.
Like India, China is seen as a good location for R&D activity and clinical trials; both countries have large populations, low labour costs and increasingly sophisticated technology and expertise. There is more and more evidence of collaborations between multinationals and Chinese pharma companies. Take the recent commercial alliance between Napo Pharmaceuticals, based in the USA, and AsiaPharm of China. Under the terms of the deal, Napo has granted AsiaPharm Group an exclusive license to develop and market products derived from crofelemer, a treatment for chronic diarrhoea, in China.
AsiaPharm will bring its expertise in process development, manufacturing and paediatric formulation, while Napo will take a consultative role in helping AsiaPharm become an FDA-approved cGMP manufacturer of crofelemer. AsiaPharm is one of China's leading pharmaceutical groups focused on the R&D, production and sale of natural drugs and chemical drugs, and uses new formulations in the fields of orthopaedics, neurology, gastroenterology and hepatology. The group has received GMP certification from the Chinese SFDA for its production lines, including those for lyophilised powders, tablets, capsules, granules and gels, and sodium aescinate. It has in-house pharmaceutical research capabilities ranging from pre-clinical evaluation to pharmacology research, drug safety evaluation and clinical trials.
"AsiaPharm understands the enormous market potential of crofelemer as a major global medicine targeting billions of episodes a year," says Napo CEO Lisa Conte.
"AsiaPharm is adept at working with plant-derived therapeutics, and has the know-how to successfully deliver drugs to very large populations, which should ultimately provide significant economies of scale."
VioQuest Pharmaceuticals is another company that has expanded its operations in China, having opened a production facility in Jiashin. The laboratory is on a par with what could be found in the USA, and allows the firm to quickly scale up the production of chiral compounds and catalysts. It is also a good way to access China's pool of R&D talent.
"Cultural differences often present a great challenge to US companies with business in China,"notes Dr Bing Yu, director of global operations for VioQuest.
"We are fortunate to have several senior-level, native Chinese managers with extensive experience working with pharmaceutical companies in the USA. We believe this multinational experience provides a distinct advantage in facilitating cross-border communication and operations."
China and India are still undoubtedly the favoured destinations in Asia for multinationals looking to achieve reduced manufacturing and research costs. China has certainly made inroads into the bulk manufacturing market, while India has successfully positioned itself as a provider of more complex services. China is also attracting more research and trials work, so the race is on for market share.
India's pharmaceutical industry received a boost recently when the US Government stated that it wants trade with India to match levels of trade with China within a few years. In 2004, US trade with India totalled $22bn, while US trade with China amounted to around $230bn.
Although US foreign direct investment in India totalled $2.6bn in 2003, there is still vast untapped potential, according to acting US Deputy Commerce Secretary David Sampson. While he recently stressed the need for greater regulatory transparency, he also commented: "I believe we're reaching a tipping point in biotechnology cooperation, agricultural and medical research, and the development of new pharmaceuticals."
India's Science and Technology Minister, Kapil Sibal, has committed himself to a number of biotech investment reforms. In return he is seeking the relaxation of export controls on biological materials to the USA, with a view to arranging protocols for the transfer of biological material for vaccine development by Indian pharma companies.
India has made progress on reform and regulatory legislation, and China will need to respond accordingly. Recently, 25 types of medicine were banned in China, including several fake or low-quality drugs. In addition, US Commerce Secretary Carlos Gutierrez has restated his desire for China to protect IPR, comparing piracy to producing counterfeit money. "'Intellectual property rights violations are a crime, and we don't believe we should be negotiating crimes with our trading partners," he said recently in a speech to the American Chamber of Commerce in Beijing.
The agenda for the region is clear. What remains to be seen is how economic trends and the process of regulation combine to shape this burgeoning market and determine market share.