PharmExec Blog

The Real China Strategy

There’s a lot of talk these days about India and China as potential markets and as sources for cheap manufacturing and R&D. But the real potential of these countries is far more interesting: As China and India (and Brazil, Russia, and Korea) learn to create new products, they’re going to do it at price points that make sense for their own domestic markets—which means substantially lower than US or European prices. The drugs they create may not measure up to the standards of approval in the developed world, but those standards, these days at least, have more to do with politics and preferences than they do with a practical risk/benefit ratio.

Let the emerging market come up with low-cost must-have medicines, though, and we’ll see how long the US fights to keep them out. A handful of sucessful medicines from India and China could end up doing a remarkable amount to transform the US drug industry and US drug regulation.

I finally met a pharm exec who’s pursuing that insight as a way to build his company, when Abe Abuchowski, founder and COO of Prolong Pharmaceuticals, stopped by to visit not long ago. You’ve probably heard Abe’s name already. He’s the biotech pioneer who developed the technique of attaching polyethylene glycol (PEG) to protein-based drugs. PEGylation, the subject of Abuchowski’s thesis at Rutgers back in 1971, proved to be an effective way to reduce the immunogenecity of biotech drugs and to increase the amount of time they remained in the body, and it’s gone on to become one of the field’s gold-standard technologies.

Abuchowski himself went on to found Enzon (starting with just half a dozen people in 1983), which he developed into a fuly integrated company. “We had to,” he says. “At the time you couldn’t just hire services like toxicology.” Enzon’s pegylation technology led to several important products, including Adagen (pegylated adenosine deaminase, for severe combined immune deficiency disease, just the fifth biotech product to win FDA approval), Oncospar (pegaspargase for certain cancers), and the blockbuster PegIntron (pegylated interferon A, for Hepatitis C, developed with Schering Plough and approved in 2001).

With PegIntron, Enzon was profitable, but it turned away from pegylation, leaving the field to Nektar. (The company announced earlier this week that it was considering divesting itself of its biotech business.) Abuchowski, meanwhile, had left in 1996, spending more than a decade as a stay-at-home dad and part-time consultant. He never lost the entrepreneurial urge, though, and in 2005 launched Prolong. (The name refers in part to the way that pegylation prolongs the time a protein spends in the body.)

The new company’s strategy is to develop patented, second-generation biotech products in India and China, using Prolong’s expertise in pegylation (which Abuchowski says is not part of the Indian/Chinese biotech arsenal) and to partner with companies able to manufacture at low cost.

Low-hanging fruit is the name of his game. Within the past month or so, Prolong announced a partnership with Zydus Cadila, one of India’s 30,000 biotechs, to produce a pegylated erythropoietin (an anti-anemia drug in the same class as Amgen’s Epogen and J&J’s Procri) and another deal is in the works in India for a pegylated granulocyte colony-stimulating factor (GCSF) drug, similar to Amgen’s Neupogen. When last I spoke with Abuchowski, he was just back from China, where he formed a tentative agreement with a biotech company over one, or possibly two, products.

“All the modern technology we have here they are copying,” says Abuchoswki. “All the first generation of biotech products are being made there and brought into the marketplace. The benefit is that they are starting with scientific knowledge that is mature rather than developing that knowledge from scratch. They have the benefit of waiting for 20 years, then building the most modern facilities with the cheapest labor and developing these products at the lowest cost possible. There are an unbelievable nmber of biotech companies, and being able to link up with a company like ours will allow them to differentiate themselves from the others in the ferocious competition that goes on there.”

Expect an announcement soon. In the meantime, more news from Prolong:
The company has just received a grant from the National Heart Lung and Blood Institute to supply Prolong’s developmental blood replacement product (which, not surprisingly, is based on pegylated hemoglobin) for researchers in such areas as combat surgery.

“It’s exciting to us because it changes the dynamic of the company,” says Abuchowski. “Instead of raising money to test our product, we can sell it to the research community while still working on it as a product, and make a little money on it. And researchers will find new uses for it. We hope that various branches of the military will want to buy it for their own application.”

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  1. Posted August 13, 2008 at 7:16 am | Permalink

    It seems that more people are starting to think that China and India are more a part of the glbal marekt then just a source for low cost labor and cheap drugs. In fact, in my opinion, this has most likley pasted and the cost of doing business in these areas is increasing.

    More important as Mr. Clinton stated, technology is moving to india and China and we are seeing more companies setting up offices in these areas to supply more advanced technologies to solve process issues. This works for both the small and the large molecules.

    What I think could be interesting soon is that no only do we get cheaper medicines coming from China and India but we should see soon better medicines that are cheaper coming fromthese regions.

    One of the companies that I have been working with tells me that the cost to get a drug approved in China is in the $5-10 million range. While I agree that it may not reach the level of standards that the west has set, it still is well below our costs.

    What are we going to do when these NME’s are launched and we in the west can not get the medications.

    We have already begun to ship more of our R&D to China and India. If this is the case, how long do we expect it to take for these areas to each our level and then pass it. Already, we see NME’s under development in both China and India. This is no longer small molecules but areas that we could consider more advanced.

    With the lower cost of approval, several of the emerging companies that I work with have already started to look to China and India for the for site of approval. To expand upon mr. Abuchowski’s comments, compnaies can launch there drugs in China and begin to see an income stream which will help them to raise addiitonal funding and decrease their funding requirments.

    Consider the increasing middle class in China with a higher standard of living, one could see a potential market. Add to this the number of people returning to China after spending years in the west demanding better medicines and we cna see market potential increasing

  2. Posted August 13, 2008 at 2:13 pm | Permalink

    I would offer, from the talent side of the table, that this trend is increasing but also goes largely unnoticed by most in the industry. The repatriation of talent back to India & China is fueling innovation, risk taking & entrepreneurialism in those countries. A 30-year old Chinese or Indian researcher used to dream of advancing his/her career to the highest levels with Pfizer in Groton or Novartis in Cambridge. No longer. Their new ambition is to return home (at a younger & younger age), armed with the knowledge gleaned from an early career in the US market & hope to stake their own claim in the native homeland.

    The shear volume of it all leaves the US & other foreign markets struggling to adapt. 30,000 biotechnology companies in India! I agree the watershed moment will be the first groundbreaking medicine to be wholly developed & launched outside the Western world, forcing everyone to rethink the balance of power & path forward for the industry relative to the resources and abilities of developing Eastern markets.

  3. vince
    Posted August 13, 2008 at 6:30 pm | Permalink

    One, Korea is a developed country and wealthier than many EU countries.

    Two, your claim, “… standards… have more to do with politics and preferences than they do with a practical risk/benefit ratio.” is provocative and likely unfounded. Too bad you did not back up such a statement with facts or examples. Are you implying Abuchowski is in China looking to sidestep first world regulators and their arbitrary requirements to make more money?

  4. Patrick Clinton
    Posted August 14, 2008 at 8:34 am | Permalink

    Vince, in regard to Korea, I was portraying it as an emerging pharmaceutical market, not as an emerging economy.

    As for regulation as politics (a point I wouldn’t think needed defense), here’s an example: China has an approved gene therapy for cancer. In the United States, we have none approved, a handful in clinical trials, and the rules for development make it incredibly difficult to move forward with such drugs.

    It could be that China is wrong and we’re right, and it’s a bad idea to work in gene therapies. More likely, we’re seeing the risk-aversion of a society that has lots of access to various forms of therapy, a highly developed tort bar, and news media that can create flurries of fear over new technology.

    Or take stem cells, where US participation in the technology is impeded by political decisions of the Bush administration. FDA has changed its standards for drug approval, though it continues to deny the fact. The agency is responding to political pressure in Congress and what it perceives as the desires of the public.

    All of this is less likely to be true in China and India. Yes, Abe Abuchowski is sidestepping US and European regulators, and he won’t be the only one. The cost of getting a drug approved in the US is astronomical, far out of the reach of small companies working independently. That doesn’t mean they can’t or won’t develop excellent drugs. And when excellent, low-cost drugs are available in China and India but not in the US, that will create a challenge to US regulators. Remember, it’s only a decade or so since the US was complaining not about safety but about the “drug gap.”

  5. Posted August 17, 2008 at 9:23 pm | Permalink

    I agree with Mr. Clinton’s view as well as the view of others expressed here. Both India and China are fast growing. But that not say these countries will replace any of the Western countries in any near future. These countries still have long way to go to reach the present level of the pharmaceutical industry in the West, not even saying that the Western pharma industry is also moving forward at the same time. Just like Japanese pharma industry. Few decades ago what is happening in India/China now also happened in Japan (although to a much less extent). I do not think everyone agrees that the Japanese pharma industry has surpassed the same industry in any of the Western countries.

    But that does not mean we should ignore the growth of India and China. The pharma industry in these two countries starts almost from scratch, in particular in China which essentially had not had a complete pharma industry before measured by the Western standard. But they are all fast catching up. In addition to their own effforts such as the investment in technology, R&D, facility upgrading, etc. the influx of a large number of pharma and biotech companies from the West, both giant ones and small ones, even startups, is the major factor. Not to mention that all top twenty pharma companies have activities in either China or India, there are a bunch of small biotech companies like Prolong going to these countries to conduct drug R&D. A startup biotech company called ChinaBio Therapeutics,Inc. is a US-based biotech company with financial supporters all based in US, but all of its operations (mainly drug R&D) are operated in China. It was founded by an American life science angel investor who came up with this idea after paid a visit to Shanghai and Shanghai’s Zhangjiang Hi-Tech Park where more than 100 biotech companeis are operating. He registered his company in US just to root his company in the West, but decided to operate all R&D in China by licensing drug candidates in early stage development (one even only in the preclinical development stage) from US biotech companies. He just can not resist the attraction of low cost labor with acceptable quality in the country. This qualified workforce at this moment still lacks of experience, but it is just a matter of time for them to catch up, in particular with the help from experienced Westerners. Examples like this can be listed long and long (I can easily give at least a dozen of them that I know).

    Is this a reality? I think so. Would any of these countries be a threat to the West? I do not think so, at least in 10-20 years. As mentioned earlier, while they are fast catching up, no one in the West is sleeping and just waiting for them.

    The huge potential drug market in these two countries is another unresistible factor to many companies going to there. This situation is not comparable to the Japan’s case a few decades ago, because the size of Japan is just about the size of a Western country. But think about the population in these two countries. More than 1 billion each! It is true only a small fraction of them in each country presently is able to afford the high end Western-stype medicines. But this small fraction of population is already bigger than the entire population of many Western countries. For example, China currently has more than 100 million people that have reached middle class level. They have enough disposable income for anything they might want to try. This still did not consider the further fast expansion of this middle class population in the country. It is estimated that, because of the fast development of economy in China, the population of this middle class Chinese is growing in 10% annually. In other words, in about 6-7 years, this size of the middle class population in China will be doubled (more than 200 million), and in less than 15 years, it will reach more than 400 million (even close to 500 million). 15-year is so long to an individual person, but it is not long enough to an industry. I do not think any of the pharma companies can afford to ingore or miss such a great market opportunity.

  6. Jeffrey ZHANG
    Posted September 23, 2008 at 8:57 pm | Permalink

    Agree with Jim!!! China and India are the future market for all pharma companies. I had been in the industry for more than ten years in Pfizer, J&J, Lilly, I saw the growth of many MNCs here, eg. Pfizer from 50MUSD in 1999 to 500MUSD in 2008, ten times in 10 years!

  7. Bernhard
    Posted September 24, 2008 at 7:26 am | Permalink

    Dear friends of India and China I fully agree with many aspects in your argumenation, but -working myself in the industry in and a lot with India, but also with Chinese partners – I believe that innovation in medicine and pharma will not be “copied” that easy as India/China did in the past 10 years with existing molecules. If you just look at India, where many companies since many years (at least 5-10 years) are heavily engaged themselves in research (for NCE) but have not really succeeded to bring one into phase 2 or 3.
    Sure they have done a lot of combination products just mixing existing molecules with others and so hoping for better reimbursement prices (e.g. Cefotaxime combi with Sulbactam), but for NCEs I do not see much for the visible future.
    On the other hand, if you want to share new (clinical) developments for use in US and EU we either have to accept the tremendous additional costs for testing for final approval (including the enormous amounts of money going to the clinics ) or accept many more problems and fatalities than we had with our expensively tested western products like Vioxx , Baycol, Zelnorm or Tysabri.
    So our decision needs to come to either “cheap as milk in China” or expensive and less risky.

  8. Posted September 29, 2008 at 9:35 pm | Permalink

    Bernhard’s point is correct. It is not easy to develop a drug. That is why it costs more than $1 billion and more than a decade to have a drug successfully launched on market (but still no absolute gurantee, see the case of Vioxx as you mentioned). Both India and China have a long way to go to come up with really novel drugs. But that is not saying they are not good at present. I think it is quite normal and also smart for Indian pharma companies to start with something less complicated. The key is to gain experience through such a type of practice. It will eventually lead to fostering a real innovative environment. I think nothing wrong with the Dr. Reddy’s attempt on developing a combination therapy with four cardiovascular drugs (It is interesting to see if it works. I personally really hope they will be success). Even with the drug discovery and development programs at Nicholas Piraml and couple of other companies, it is nothing wrong to start with a known drug molecule and, by structural modifications, come up with something more effective. After all, what patients really need is the effective drugs that can heal their illness, or, better, save their lives as in the case of the novel mechanism-based anticancer drugs. Whether they have a fancy mechanism or novelty in molecular structure really does not matter to them. Also, the drug must be cheap. The principle is: the cheaper and more effective are the best. In terms of this, I think the approaches Indian and Chinese pharma companies are currently taking are in the right direction.

    On the other hand, the current problems in both India and China are all related to regulation. Those rules practiced in the West for several decades are all new to people in these countries. I think government in both countries are now well aware of what they need to do, and, in fact, they are taking efforts toward that goal. With the open of FDA’s new Asian office in Beijing and more communications as well as collaborations between the West and the East, industries in these countries will quickly follow up and become better.

  9. Posted August 30, 2011 at 10:15 am | Permalink

    thank u for your post very much.i will comeback later

  10. Posted December 13, 2011 at 2:18 pm | Permalink

    Thank you so much for this information. It is so helpful…

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