COMMENTARY: Budget Cuts Threaten Years of Progress in China's Pharmaceutical Sector

Regulatory bodies reportedly having trouble paying researchers after a 30 percent reduction just as world-class drugs are coming to the market.

Mark Melnicoe
    Jun 15, 2019 5:10 AM  PT
COMMENTARY: Budget Cuts Threaten Years of Progress in China's Pharmaceutical Sector
author: Mark Melnicoe   

For the past four years, China's pharmaceutical industry has been on a roll, testing and starting to market sophisticated anti-cancer drugs while the government pumps up the regulatory apparatus to speed approvals.

It's been one of the undeniable success stories as China ramps up its manufacturing to high-value products. The pharmaceutical sector, in fact, is one of 10 technology areas the government is pushing into global leadership under its Made in China 2025 program.

Suddenly, this progress is threatened by government funding cuts to the Center for Drug Evaluation (CDE) and its parent, the China Food and Drug Administration (CFDA). The reductions started early this year, imposed by the central authorities in Beijing because tax cuts and a slowing economy are resulting in less revenue for the government.

Since the CDE's funding was cut 30 percent at the start of the year, the agency has had trouble paying its researchers, the Caixin news portal said in a revealing report this week. Experts fear the newly vaunted drug sector in China may now be losing steam.

Up-and-coming in Global Biopharma Market

Like the FDA in the U.S., China's regulatory authority reviews clinical trials and acts as the gatekeeper for foreign companies wanting to enter China's health-care market. It has made huge strides since 2015 when wait times for drug approvals typically were five years or more.

The number of analysts at the CDE was increased from 200 in 2014 to its current level of 800, and rules were rewritten to streamline approvals while drug firms were provided tax breaks for their R&D to develop world-leading products.

A big payoff has resulted. China's drug industry, long focused on generics and cheap chemical medicines, has made enormous inroads in cutting-edge biologicals, such as PD-1 inhibitors, which use the body's own immune system to fight cancer. Bloomberg noted in a story this month that companies like Innovent Biologics (HKEX: 1801), Shanghai Junshi Biosciences (HKEX: 1877), BeiGene (Nasdaq: BGNE) and Jiangsu Hengrui Medicine Co. (SS: 600276) are making such drugs and in some cases applying for approvals or trials in the U.S.

These firms are able to sell their drugs at prices far cheaper than American companies, including Merck & Co. (NYSE: MRK) and Bristol-Meyers Squibb (NYSE: BMY), which gives them a big advantage at home. Their researchers are developing drugs to treat a range of diseases, and the Chinese firms are winning patents to compete with the West.

Delays in Drug Approval

The sudden cutback to China's regulatory authority could cut various ways for Western firms wanting in on China's burgeoning market and also seeking to fend off Chinese competition in the U.S. and Europe.

On one hand, if Chinese firms face longer wait times for approvals, foreign firms selling into China with drugs already approved clearly will benefit. On the other hand, they will be hit with the same delays in trying to gain new approvals as they develop their product lines.

At home, American and European drug companies may catch a break. If newly emerging Chinese pharma firms face delays in their China approvals, it likely will set back their efforts internationally, as well.

It hasn't been all smooth sailing - even recently – for China's pharmaceutical sector. A big vaccine scandal last year dented confidence in the domestic industry. Bi Jingquan, former head of the CFDA and a key driver of drug-approval reform, was forced to resign over the incident.

But overall, things have improved greatly. Caixin noted that before 2017, a lack of manpower slowed drug reviews by the CDE and contributed to the country's notoriously lengthy drug-approval procedure. The logjam was blamed for China's lack of new drugs and difficult access for foreign pharmaceutical companies. In 2015, the CDE had a backlog of more than 22,000 applications and it could take as long as seven years to get a drug approved.

But, Caixin noted, in 2018 Merck & Co.'s HPV vaccine, Gardasil 9, was approved in eight days, with an overall approval period of three years. It noted that China approved 48 new imported and domestic drugs last year, including for PD-1 cancer drugs.

Losing Momentum

Now that momentum has stalled amid the government cuts, and some of the foreign researchers who had been lured to China are heading back to the drug companies that can afford to pay them. Sources told Caixin that the average wage offered by CDE to a senior drug reviewer amounts to only 10 to 20 percent of that offered by big pharmaceutical companies.

Caixin said the funding shortage is casting a shadow over the entire reform outlook. "Several sources close to the CDE told Caixin that the center is losing momentum and turning increasingly cautious in making new moves as concerns over uncertainties grow," it said. "The center's changing posture has also sent uncertain signals to the industry, fueling concerns about a stalled restructuring."

"The drug review reform showed a clear direction to us that China was moving toward the international standards," a pharmaceutical executive said. "But now it is more uncertain."