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This article was originally published by Jingyun Ni, Junrui Zhao, Carolina Oi Lam Ung, Yuanjia Hu, Hao Hu and Yitao Wang in Globalization and Health201713:21 under a Creative Commons License.
Global healthcare innovation networks nowadays have expanded beyond developed countries with many developing countries joining the force and becoming important players. China, in particular, has seen a significant increase in the number of innovative firms and research organizations stepping up to the global network in recent years. Nevertheless, the intense Research and Development input has not brought about the expectable output. While China is ascending at a great speed to a leading position worldwide in terms of Research and Development investment, scientific publications and patents, the innovation capabilities in the pharmaceutical sector remain weak.
This study discusses the challenges and opportunities for pharmaceutical innovation in China. One hand, academic, industrial, institutional and financial constraints were found to be the major and inevitable barriers hindering the development of drug innovation. On the other hand, unique advantages had been observed which included growing pharmaceutical market, Research and Development funding, distinctive source, and international cooperation.
The most important thing for China’s pharmaceutical sector to leap forward is to break though innovation barriers and integrate own advantages into global value-chain of healthcare product development.
Pharmaceuticals are playing an extreme important role in global health system by diagnosing, curing, treating, and preventing diseases. In terms of dramatically increasing R&D (Research and Development) expenditures and relatively decreasing approvals of new drugs during recent past, the decline in R&D efficiency has been the central issue of discussing global pharmaceutical innovation [1, 2]. Meanwhile, recent literature clearly points out that emerging countries mainly involving China show the increasing importance of pharmaceutical R&D activities and investments in innovative research for developing new drugs with the influence of R&D globalization [3, 4]. In this context, it is of great significance to understand pharmaceutical innovation in China from the global perspective.
As one of the fastest growing markets among the emerging countries, China received increasing attention from around the world. Due to supporting national polices, economic growth, aging population and global trend, China’s share of pharmaceutical industry output increased nearly seven‐fold, from 2.5% in 1995 to 18.3% in 2010, and is expected to become the second-largest pharmaceutical market in the world by 2020 [5, 6]. This changing trend may also apply to the global healthcare innovation networks as increased sales performance can better support R&D.
It is obvious that China has ascended to a worldwide leading position at an accelerated pace in terms of R&D funding, scientific publications, and patents in recent years . With the perspective of switching from imitation to innovation, R&D expenditure in China’s pharmaceutical industry increased from $162.6 million USD (USA dollar) in 2000 to $3249.2 million USD in 2011 . The favorable condition created by the tremendous investments made by Chinese pharmaceutical sector in R&D has resulted in significant global share of scientific publications and patents in recent years. The number of articles published by Chinese scholars in peer review journals related to pharmaceuticals has leapt to the second position in the world .
However, China is still weak in developing real innovative medicines. Considerable pharmaceutical R&D input, scientific publications and patents in China have not yet translated into the ultimate outcome of innovative pharmaceutical products recognized globally. For a long time, pharmaceutical industry in China is known for its mass-production of low-level generic drugs and as a ‘world factory’ of active pharmaceutical ingredients (APIs) with little mentioning of real innovative medicines . Studies have shown that China remains at a weak position in the global drug innovation network based on analysis of worldwide recognized innovative drugs [10, 11, 12].
It is no doubt that the pharmaceutical innovation system in China is filled with obstacles which prevent China’s R&D capabilities from transforming into innovation competencies and eventually pharmaceutical products to generate market values . With concerns about the huge gap between strong R&D input/ paper output as well as weak innovative medical products, this study aims to provoke a more systematic analysis of obstacles and opportunities in Chinese pharmaceutical innovation system. More understanding of pharmaceutical innovation system in China will be helpful to provide the more opportunity of discovering new medicines effectively in the world.
Obstacles to pharmaceutical innovation in China
It has been suggested that close partnerships among universities, institutions and companies are integral for the new business model of pharmaceutical R&D in China . However, to maintain an effective collaboration between the science and the industry of pharmaceutical has always been challenging. Pharmaceutical researchers in universities and research institutes in China devote very much to the research work which does not usually take into consideration of the overall development of the pharmaceutical industry. As a result, the research work may not fully address and respond to the challenges and changing demands of the industry .
Moreover, paper output, i.e. scientific publications and patents, generated in the environment have been seriously criticized by international society, as is clearly shown in recent literatures [19, 20, 21]. The Science Citation Index (SCI) -based promotion scheme provides scholars with great incentives in terms of personal honors and has successfully encouraged them to produce a large quantity of publications and file many applications for patents. However, the citation rate of academic papers remains at a low level and the patent lives are short. As shown in Fig. 2, the proportion of licensed patents gradually declined, despite the rapid increase in the number of granted patents during the past decade. The difficulty of patent licensing by universities may imply a considerable gap between academic research and innovative products. Critics start to review the benefits and possible downside of the SCI-oriented research assessment criteria. It has been suggested that, under the scheme, scholars have become more oriented to personal achievements than the core value of research work, which has lowered innovation quality and slowed down the overall pharmaceutical innovation development in China [19, 20]. Commercialization of R&D output to real innovative drugs well thus falls behind.
In the context of industry, high fragmentation of the industrial structure, weak R&D intensity and serious product homogeneity are the major barriers to new drug development in China. As of 2012, there were around 4500 domestic pharmaceutical manufacturers and 14,000 domestic pharmaceutical distributors in China, which were attributed in three subsectors involving in chemical drug (50%), traditional Chinese medicines (32%) and biotechnology production (18%) .
As shown in Fig. 3, more than 70% of pharmaceutical manufacturers are small-scale enterprises with employees less than 300 and operating revenue less than $3 million USD in China (according to China’s Regulations on Small and Medium- sized Enterprises (SMEs) Categorizing Criteria’ last accessed in 2011) . It is difficult for them to sufficiently support R&D with all necessary financial resources to pursue new drug discovery.
Meanwhile, current ratio of R&D investment to sales is about 2.7% in most of the Chinese pharmaceutical companies, which is significantly lower than that of US counterparts ranging from range of 15–20% [9, 24]. Due to lack of R&D resources for new drug discovery and development, most of the small-scale firms engaged mainly in low-value-added activities such as manufacturing, formulating, packaging and distributing generic products rather than innovation activities. At most, these pharmaceutical firms usually opted for developing generic drugs in order to obtain short-term revenue without going through the burden of high technical innovation. According to the ‘China Drug Review Annual Report’ released by the China Food and Drug Administration (CFDA) in 2012, the number of category 1.1 new drug applications which reflect the status of innovative drug development solely in domestic Chinese pharmaceutical companies remained around 70 per year over the past few years. On the contrary, applications of changing dosage form and new generic drugs accounted for more than 50% of chemical drug applications in China (see Fig. 4).
In addition, repetitive applications of generic drugs without high technical innovation became a prominent issue in the current pharmaceutical industry in China. Figure 5 indicates the distribution of the Abbreviated New Drug Application (ANDA) applications with existing approval numbers submitted in 2012. The vertical axis represents the number of ANDA applications, while the horizontal axis shows the intensity of repetitive applications. There were 1272 applications of generic drugs, each of which was repetitively submitted by different sponsors more than 20 times, accounting for 60.7% of the total in 2012. For example, in 2014, CFDA released the first list of overproduction drugs (more than 500), 34 categories of drugs are manufactured by more than 500 pharmaceutical companies in China, such as aspirin, ibuprofen, metronidazole, norfloxacin and so on.
The excessive development of homogeneous generic drugs resulted in over-capacity of the same products, which catalyzed the unordered market competition. While many manufacturers produced the same type of generic drugs, each manufacturer incurred only single-digit profit margin or might even experience financial loss .
Regulation and administration
The regulatory system of pharmaceutical products in China has also contributed to the sub-development of drug innovation in China. Firstly, due to insufficient manpower of the Center for Drug Evaluation (CDE) and excessive applications of generic drug products, the drug approval time in China was often prolonged which greatly discouraged pharmaceutical R&D. The average waiting time for standard reviews was 12.3 months (see Fig. 6) which could be prolonged much further to a point of having an uncertain time for obtaining final approval . In contrast, for the Food and Drug Administration (FDA) in the U.S., the New Drug Application (NDA) usually took 12.9 months after standard reviews to receive an approval .
On the other hand, regulatory standards in China were not consistent with international practices. As China did not join the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH), innovative drugs which already marketed in other countries had to undergo the new drug registration pursuant to China’s Drug Registration Regulation. Consequently, the entry of import drugs to the local market could be delayed as many as 7 years on average compared with the date the drug first marketed in other countries . For example, Gardasil (Human papilloma virus (HPV) vaccines), which is used to prevent infections by certain types of human papillomavirus, has been first marketed by MSD company in 2006. However, this widely-used vaccine that has been marketed in more than 130 countries and regions in the world, has not yet approved by CFDA. Furthermore, for registration purpose, it was necessary to repeat the clinical trials of import drugs in China as the China’s Good Clinical Practice (GCP) was different from the GCP according to ICH. In addition, pre-approval by the CFDA was needed before clinical trials could be conducted, which meant another several months or more waiting time. The international clinical trial multi-center might offer some advantages as a quick channel for import drugs but this only applied to drugs that were already marketed or at least entered phase II clinical trial in other countries . As a result, simultaneous global development of drugs faces great challenges in China.
Finally, unlike the practice of marketing authorization holder (MAH) widely adopted in many developed countries, drug marketing authorization in China was only granted to pharmaceutical manufacturers with production authorization. This created significant threat to the initiative of technology transfer between R&D players and pharmaceutical firms. On one hand, R&D institutions might lack the manufacturing facilities and thus were not eligible for applying marketing approval of the drug developed in-house. On the other hand, drug manufacturers needed to shoulder the pressure of massive financial investment for every new production line when developing a new product. The potential risk caused by overcapacity would further constrain the future development of enterprises or even the entire pharmaceutical sector.
Finance and service institutions
As a major component of innovation system, financing system firstly poses significant challenges to drug innovation in China. Improper funds arrangement was common and usually resulted in inefficiency of new drug R&D. Public investment was the key funding source for R&D institutes in the pharmaceutical sector, of which more than 81% R&D expenditure was accounted for with government funding while private investment only accounted for 5.41% in 2012 . Although the central government had allocated increasing resources into R&D institutions in recent years, investment for basic research was insufficient. In China, only 4.7% of R&D investment was used to improve basic research which was little compared with the figure in some developed counties (see Table 1). This was especially problematic for pharmaceutical industry as preliminary research was the source of new ideas important for fueling subsequent innovation and had significant impact on the performance of new drug discovery .
International comparison of R&D expenditure
By types of Research %