China’s Biopharmaceutical Industry–Current Situation and Suggestions

By Tao Ran

1. Current Situation

Compared with traditional pharmaceuticals, biopharmaceuticals – leaving fewer footprints in the environment and having less dependence on resources – boast more specialized functions, less side effects and higher profits, but require more advanced technologies. Due to small scale and insufficient capital, more than 90% of domestic 400 biopharmaceutical enterprises mainly imitate foreign products, but seldom create, facing the disadvantage of weak competitiveness. Seventy eight percent of foreign applications in China are submitted by enterprises; domestic applications, 25% from enterprises, lower than that from universities and individuals. As for global biotechnology patents, the U.S., Europe and Japan own 59%, 19% and 17% respectively; developing countries including China, 5%.
   Supported by National High-tech R&D Program of China (863 Program) and National Program on Key Basic Research Project (973 Program), China’s biopharmaceutical industry has developed rapidly in the last 30 years, especially technologies regarding functional genomes, stem cells and biochips, which now meet international first-class criteria. With an annual growth rate of 25% from 2006 to 2010, the output value of China’s biopharmaceutical industry reached RMB88.72 billion in 2009, up 29.1% YOY. Foreign biopharmaceutical giants are still far superior to domestic enterprises in aspects like technologies, personnel, equipment and industrial structure. The world’s top 5 biopharmaceutical firms invested US$41.6 billion in R&D for new medicines in 2010, while China’s biopharmaceutical industry has spent just US$2.7 billion developing new drugs from 2008 to 2010.

2. Great Government Support

*11th Five-Year Development Plan for the Biopharmaceutical Industry issued in April 2007
*Policies on Promoting the Development of the Biopharmaceutical Industry issued in June 2009
*Decision of the State Council on Cultivating and Developing Strategic Emerging Industries, issued in October 2010. In the Decision, biopharmaceutical industry, energy conservation industry, environmental protection industry, new energy industry and new material industry were listed as major strategic industries.
*12th Five-Year Development Plan for the Pharmaceutical Industry issued in 2011. According to the Plan, relevant departments will provide special funds, around RMB40 billion, twice as much as that in 11th Five-Year Plan period, to major new medicine R&D projects. RMB10 billion comes from the central government, and the remaining from local governments and enterprise financing.
*In the 12th Five-Year Development Plan for Biotechnologies (Exposure Draft) issued in 2011, the State set three targets: by the end of 2015, the output value of both biological agriculture and biopharmaceutical industry will exceed RMB200 billion; new listed companies engaged in biopharmaceuticals, 10; annual growth rate of biopharmaceuticals output value, more than 15%. Through investing more in basic research programs and business scientific research, the State helps enterprises lower R&D risks, providing guarantee to them to make new products. Biopharmaceutical enterprises enjoy tax preferential policies, with the export rebate rate of biopharmaceuticals and some high-tech products increasing from 13% to 17%. For bio-tech enterprises with key support from the State, their business income taxes are 15% lower than others.

3. New Medical System Reform

*In the next three years, governments at different levels will invest RMB850 billion in reforming the basic medical health system, with domestic annual growth rate of outpatient visits staying at around 10%.
*The State has loosened policies regarding social capital and foreign capital entering into medical & health organizations and pharmaceutical enterprises. For example, BioVeda Capital – a world famous venture investment fund – intends to co-establish a RMB1-2 billion biopharmaceutical development fund in Guangzhou Development Zone.

4. Suggestions

*Linking R&D and Industrialization
It is suggested that domestic universities, scientific research institutions and pharmaceutical enterprises should cooperate with each other.
*Accelerating Industry Upgrade
Improving industry competitiveness through integrating, merging and reorganizing less-competitive enterprises, and adopting advanced technologies.
1) Product Variety Upgrade – The mode with active pharmaceutical ingredients and imitation medicines as major products will be transformed to a focus on innovative pharmaceuticals with proprietary intellectual property rights. Supervising departments will shorten the process of examination and approval, and meanwhile make stricter requirements regarding the production of new drugs so as to ensure that huge R&D investment of enterprises is paid back properly.
2) Criteria Upgrade – Higher criteria on effectiveness and security of pharmaceuticals should be established.
3) Upgrade of Quality Control System – It is applicable to the whole production system and the enterprises. The application of new standards will force some small enterprises that are not competitive to exit the market.
4) Introducing talent is another key for the industry to upgrade as they will improve enterprises’ R&D ability directly.
*Making Patent Strategies
As patent has become the most valuable asset instead of equipment and workshops, the enterprises develop patent strategies to make full use of patent system, patent technologies and patent information to compete. For protecting biopharmaceutical intellectual property, the patent is the most effective method and it is the core indicator when evaluating the value of biopharmaceutical enterprises, which must control advanced patent technologies to keep their advantages in techniques and markets, maintaining continuous development finally. Benefiting from patent strategies, biopharmaceutical enterprises save capital and time, avoid redundant research, make proper adjustment in accordance with rivals’ patents to adapt the market, etc.
*R&D Outsourcing
R&D outsourcing is an important link of new medicine R&D. To reduce costs, foreign biopharmaceutical enterprises entrust other firms from countries where R&D costs are lower, to be responsible for non-core research. In China, there are more than 2 000 enterprises involved in R&D outsourcing, with market share reaching US$5.9 billion, estimated to have risen to US$12.3 billion in 2011. However, as the scale is still small and some competitive corporations pay limited attention to outsourcing business, the output value of R&D outsourcing just accounts for a small part of the total. With the help of R&D outsourcing, domestic biopharmaceutical enterprises could learn foreign advanced technologies and management to boost their own.

5. Conclusions

As one of the most promising industries in the 21st century, the biopharmaceutical industry has attracted more and more attention from the world. The national government has provided greater support through policies and finance to the industry. However, China’s pharmaceutical industry has to be improved in industry structure, patented technologies and R&D.