China’s evolving API industry
Regulatory reforms are reshaping China’s API industry, fuelling consolidation and increasing compliance costs which has significant implications for the domestic market and global drug industry. In March, China’s State Council announced its intention to reorganise the Chinese Food and Drug Administration (CFDA), the agency that regulates the production of drugs and drug ingredients in the country1. While details have not been disclosed, it is understood that the changes will involve combining the drug watchdog with agencies that regulate business, industrial quality control and product pricing2.
The reorganisation is part of a series of regulatory reforms impacting API production in China in recent years, many of which have focused on quality and harmonization with international standards3. For example, in June 2017 China was admitted to the ICH as a regulatory member4. Membership requires that a country’s regulators, industry and research institutions adopt ICH technical standards and guidelines5.
However, perhaps the most significant change to impact the API sector is the enforcement of revised good manufacturing practice (GMP) guidelines that began in 2016. The revised standards, which were modelled on EU, WHO and ICH guidelines albeit with some differences, introduced the requirement that manufacturers operate an effective quality control and analysis system6. The revisions were adopted in 2011, however, enforcement was delayed for five years to give pharmaceutical ingredient manufacturers time to adapt their operations.
Chinese API sector
The standards to which Chinese API manufacturers adhere vary depending on the markets they serve according to Scott Wheelwright, principal consultant at China-based consulting group Complya Asia.
“Many suppliers have been in compliance with European and US regulations for many years, while others that supply only to the domestic market have not upgraded their facilities and quality systems except as they have been pushed by CFDA.
In addition, China’s API industry is in a state of flux. In 2015 Government data suggests there were 7,000 to 9,000 [drug and API] manufacturers in China. Current estimates indicate there are around 4,500.
“The number of [API] suppliers has decreased through a combination of mergers, acquisitions, and closures,” Wheelwright said, adding that “Some companies are not able to comply with the stricter regulations because their plants are old and upgrading is not justified for low margin products. I have seen plants where my suggestion was to close rather than try to upgrade.”
GMP compliance costs
The cost of bringing an established API plant into compliance with new regulations can be considerable, Wheelwright explained. “An old plant that needs engineering upgrades may be attractive as an acquisition target by another firm, but only if the expected profits justify the investment. I think it is more likely for decrepit plants to go out of business than to be acquired. I have seen some terrible facilities that should be abandoned. But there are many new and modern facilities that meet international standards.”
This is echoed by David Deere, Chief Commercial Officer at PaizaBio, a New Mexico-based CMO and consultancy, who told us he believes the cost and the technical challenges involved in adapting operations may have prompted some suppliers to cease trading. “Since the Chinese pharmaceutical industry has been one of ‘copying’ chemical drugs, with perhaps some minimal analytical work, it is hardly a surprise that the actual manufacturing process has not followed any viable template for human drugs as it relates to documentation and controls."
Regulatory enforcement in China
Historically, the CFDA has had limited enforcement resources. Last October, director Bi Jingquan revealed that, as recently as 2015, the agency only had around 100 staff trained to review drug applications7. To put this in context, the US Food and Drug Administration (FDA) has a 5,000-person strong review team. Since then the CFDA has hired 700 more drug review staff according to chief scientist, Ruyi He, who told attendees at the WuXi Global Forum in San Francisco in January the agency plans to double the size of its review team by 20208.
The CFDA’s manufacturing plant inspection capacity is harder to quantify, partly because regional authorities are involved Deere says. “GMP enforcement, especially of API production, is often decentralized to provincial satellite offices and therein lies a potential problem of enforcement, insufficiently trained and accountable inspectors.”
It is not clear whether the new State Food and Drug Administration will be better resourced. However, provincial offices are likely to continue to play a role in inspections according to Wheelwright. “We have seen inspections moved to centralized control and then move back to provincial level control due to budget and for political reasons. The provincial offices have more experience with inspections, so leaving some of this activity at the provincial level will be good for the industry. “However, this means that rich provinces with experience, such as Jiangsu, Zhejiang and Guangdong, will continue to fare better than inland regions. The reorganization planned at the ministerial level will probably not impact GMP manufacturing.”
China is a major source of APIs used by drug manufacturers around the world with the Indian generic sector being a major customer. The changes to how China regulates its API sector are positive for pharmaceutical companies who source from the country according to Wheelwright. “The overall effect of the push by CFDA to upgrade GMP compliance is good for customers because it leads to increased confidence in suppliers. The low-performing plants provide drugs for domestic use.”
He also says, “Accession of CFDA to ICH is expected to lead to overall improvement of the quality of materials provided by the industry. But the largest impact is on local supplies for the domestic market because most foreign customers do not rely on CFDA approval to qualify their suppliers.”
However, compliance costs are another thing that international companies should consider when sourcing in China says Deere. “As GMP compliance forces capital investment, training and all that is required to meet global cGMP the remaining Chinese API manufacturers will have a higher cost basis. “This will affect US/EU importers of API, and certainly India.”
 http://www.gov.cn/guowuyuan/2018-03/14/content_5273856.htm (Mandarin)
 http://zhishifenzi.blog.caixin.com/archives/168137 (Mandarin)