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The Latest on China

China’s impact on biopharma has been a perennial story in the press (and on this blog). The big picture has been the interplay between the “China as a source of cheap scientific labor” story, the “Big Western drug companies setting up divisions in China” one, and “When will China have its own research-driven drug industry?” All of these have gone through cycles. The cheap-labor one has seen costs rising as Chinese wages and expenses have gone up (and also the efforts by some of the larger companies to either justify those costs by providing higher-level services and/or to keep their own costs down by moving operations to less expensive parts of the country). The China’s-own-drug company one is illustrated by this blog post from 2010 and this one from earlier this summer.

As for the Western drug companies in China story, though, here’s the latest chapter: several of the organizations that put significant money and resource into their Chinese operations have been scaling back. Things have not worked out on the more optimistic projections, and China as a whole is still well below its potential:

Among the top 12 countries contributing to global pharmaceutical research and development in 2015, China accounted for 4 percent, while the U.S. contributed almost 50 percent, according to a report published last October by four industry groups. Of the new molecules discovered from 2007 to 2015, 2.5 percent came from China, compared with 56.3 percent from the U.S.

In the past, “big pharma” anticipated it could benefit from “large supplies of raw talent coming out of universities,” said John Wong, chairman of greater China for Boston Consulting Group. Among the local R&D activity in China, “there is a little bit of innovative work, but this is also largely copycat. So, the promise of a large talent pool and lower-cost R&D has not really delivered.”

That’s not to say that there aren’t good scientists in China – there are plenty. But China’s situation is different from most other places in the world, and (to be sure) no one knows quite how to grow innovative R&D industrial sectors from scratch, anyway. (If anyone did, there would be more of them).

The article suggests that there may be more happening on the development side than on the basic R&D side, and honestly, I think that’s always been the case. The basic research stuff tends to get more attention, both from an internal Chinese national pride aspect and (on the other end) from the “Oh God, here they come” attitude that some people have outside the country. But China’s internal drug market is (from a financial aspect) the big story, and late-stage development, regulatory affairs, and so on are the big components of it. It’s not as compelling a narrative – just more people coming in and trying to sell things in the Chinese market – but it’s probably the main one for now. The Chinese government is in the middle of a big plan to overhaul the entire drug-approval and regulatory system, and everyone inside the business will be paying a lot more attention to that. Reforms, by the way, are very much needed, from the looks of things, but the effectiveness of the new proposals will have to be judged by results.

Meanwhile, on the early stage R&D end of things, the rise of China’s endogenous biopharma industry is already well behind some of the earlier predictions, and given the uncertainties about the new drug approval process, it’s not going to be possible to make meaningful guesses about it for a while yet. As has been the case for years, the situation includes large numbers of scientists, many of them very hard-working and talented indeed, along with a good deal of money, a government that simultaneously wants to see a successful industrial sector develop but also wants to keep their hands on it while it does so, and foreign companies that are simultaneously attracted by and fearful of the situation. Add to that the growing pains of Chinese research in general – the literature coming out of there can be problematic, as the authorities themselves realize, and there are persistent quality-control problems with things like cell lines and reagents. A very wide range of outcomes are possible, given all these factors. Anyone involved in these efforts (or just investing in them) had better be lively and flexible. It won’t be dull.

Update: as pointed out in the comments, there’s another possibility in play: a Chinese company buying out a Western one. This is already happening in other areas, and is worth watching for.

 

30 comments on “The Latest on China”

  1. Jeff says:

    I have been involved in receiving technology transfer packages from Chinese CROs and CDOs several times in my career and my take away is that China fundamentally lacks the “culture of quality” that is expected and required pretty much everywhere else in the world. There are some great scientists for sure, but their management just does not get it. Really fundamental stuff like controlling your raw materials and vendors and facility management and security is often completely absent.

    They treat pharma development like any other widget that can be produced on an assembly line and quality is treated as a threat to the bottom line and is the first thing to go.

    China can learn this, but they have a looooong way to go.

    1. Emjeff says:

      Sure, they can learn – they do when they come here to the U.S. But in China, a Communist-run nation where freedom to disagree is not protected, anyone who complains about lack of quality will find themselves in hot water. Things will not get better in China until the government gets better.

    2. China is fully capable of making good quality products. Years ago they started building pianos, and they were *terrible*, but within a few years they’d figured out that quality actually mattered in this market, and they started making quite decent instruments.

      I don’t think Pearl River is any Bösendorfer, but at least at one point in time they had a fairly well sorted, inexpensive, “consumer” piano.

      1. lp says:

        Here’s a new topic for a blog post: ‘drugs are not pianos’

        1. Pianos are, however, a drug.

          1. FUAM says:

            Tell that to the parents of the children who died in Park City, from Pink- supplied by Chinese manufacturers of Upjohns long forgotten opiod mu agonist U-47700. Or the thousands who have died from fentanyl overdoses on the street.

  2. Anon says:

    One could always include India whose performance is equally abysmal! All of us lost our job for nothing in great recession of 2007-2008. I think when you grow up to be a copy cat, there is no incentive to innovate and then you hope you will ride on your 5000 years of civilization and such.

  3. Passerby says:

    Given the rate at which China is advancing on the fronts of AI and Big Tech, I won’t be surprised if they reach parity with the U.S. in pharmaceutical innovation in twenty years. The Communist government in China does seem to hamper honest feedback and innovation, but the Chinese have also proven that if their government does decide to do something (as they are doing in AI), then the same forces that usually hamper innovation will also lift it sky high.

    1. astute reader says:

      Untold premise here is ‘AI and Big Tech (whatever these mean) helps pharmaceutical innovation’, validity of which has been thoroughly discussed in this blog zillion times.

  4. anon the II says:

    When we got laid off, en masse, from big pharma back in 2003, the manager doing the talking said “Sorry, your jobs are going to China”. Actually, I don’t think he said “Sorry”.

    Given the way things have turned out, do you think we can get our jobs back? Yeah, I didn’t think so.

    1. Emjeff says:

      Nor will the person who made the decision to send those jobs to China be held accountable for that bad decision…

      1. Dr. Manhattan says:

        Nor will that individual have to give back his bonus for “value added strategy for Transformational change and continuous improvement”

  5. anon III says:

    I remember when we were told that China/India were going to run full Med Chem programs including assays being led by a Director in the US. That lasted maybe 2 years before they realized it didn’t produce clinical candidates. Not entirely their fault since some of the targets were not well validated to begin with or doomed by program reorgs. Then came the hybrid approach where they still were making “useful” targets with a US based team…that quickly became a means to patent fill. Any cell based assay being run abroad was a gamble and our internal QC constantly had to reject data. Now it’s a la carte synthesis for whatever a project needs and some “scale ups” if they can handle it. There is definitely a use for them to help move a project along, but not the initial hopes and dreams the Senior Leadership proudly proclaimed.

  6. RBW says:

    Nobody can compete with China in terms of sheer resources and the collective will of the people. If the government pushes drug discovery as a top priority, they will make it work … eventually.

    Take a look at academic organic chemistry. We used to say the Chinese research was of low quality but this is no longer true. Open the top journals and you’ll see plenty of Chinese groups publishing. And look at the US publications in those same journals- how many do not feature any Chinese co-authors? In the same way, they’ll bridge the quality gap that currently exists in drug discovery.

  7. Chemourist says:

    Unfortunately scientific fraud (academic and industry) seems to be very common in China, more than in other countries. This is a good article that talks about it:

    https://mobile.nytimes.com/2017/10/13/world/asia/china-science-fraud-scandals.html

    1. Emjeff says:

      And the predatory journal issue is connected to this.

  8. Glen says:

    Food and drug safety are certainly among the top concerns of the Chinese people. The response of the party and government are, by nature, hard to follow. Tough penalties (including execution) for the individuals held responsible for food/drug safety violation may, in the long term, be more effective than financial penalties for corporations.

    As an industry, Chinese biopharma will prosper when Chinese people feel no need to pay a significant premium for quality imports. Comparison of the prices of import vs domestic drugs in the major cities is probably the easiest way to monitor progress.

  9. anomymous says:

    derek should always put a disclaimer that this is not a chindia bashing forum. people who complain about losing jobs should also know that most work highly talented people do here is crap or failed/outside change kinda research on targets that teams in US do not want to work on. We are equally disappointed by lack of true R&D in this region as also the needless blame game about jobs

    1. anon says:

      It is also worth mentioning that people who complain about losing their jobs were not complaining when the US companies took over any small to midsize company in developing and underdeveloped countries. While globalization, on average, helped people to obtain a better quality of life in these countries, the pain it caused is very real. American exceptionalism at its best.

    2. Derek Lowe says:

      I know that this sort of thing is going to show up whenever I write on such topics, but at the same time, it’s an important part of the field. No way around it, from what I can see. . .

    3. Anonymouse says:

      Anon: Saying that scientific fraud or quality control problems are more common in China and India is not “chindia bashing”. These are facts. No one is saying that Chinese or Indians are less smart or work less, but it’s totally legitimate to criticize the lax institutional systems that allow this kind of thing to happen there.

      1. anon III says:

        @anonymouse

        You can’t say “no one” is saying those things when this blog has regular contributors (luysii and sendthescabsbackhome) saying exactly those things.

  10. john d says:

    There’s a fourth option that you haven’t mentioned – China acquiring western drug companies. It’s happening in other fields (e.g. Volvo, Pirelli) and it’s starting to move into chemistry-related fields (agrochemicals – Syngenta, Adama)

    1. Derek Lowe says:

      You’re absolutely right – I’ll update the post!

    2. fajensen says:

      From experience with American and Chinese takeovers, I’d say that the Chinese are definitely the ones one would want to be bought buy!

      Americans are Imposers: If one is bought by a US business, the American management will immediately try to impose American work culture and values on everyone, then the talent leaves while everything grinds to a halt because every paperclip has to be approved and certified by some US office “so we don’t make mistakes”. The US bosses do not see any discrepancy in savings on everything while appearing on FaceBook with some pimpmobile in front of a 3 Billion US new head office either – that’s what Winners look like, loser look like employees.

      Chinese are long term investors, as long as they get their expected “dividend” – the business does what they expected, which is pretty much what it was doing when they bought it (current numbers is why they bought it) – they don’t care much about the internals. They are often very discrete, the most powerful and important in the group will be the old guy in the back with the brown “mao-jacket”, his go-fers will be more shiny (He might have a 3 Billion house in Shenzen and 20 Ferraris but he will never show this).

      I think the difference in style will begin to show in outcomes over the next two decades. China is even more underestimated than Japan was back in the day.

  11. Kemist says:

    They will excel in this area, much easier to get clinical trials done with a captive population.

  12. NMH says:

    Remember when the white supremacists marched in Charlottesville, they were saying: “The Jews will not replace us……”

    Maybe we should march and say “The Chinese will not replace us…..”

    Unfortunately, this may not be true.

  13. MoMo says:

    China is the enemy, against Democracy except for consumerism, no matter how inexpensive our national Pharma industry finds them. They are taking our national assets everytime an American company sends them projects, and those doing so they lose considerably. These American companies are traitors, revealing strategic assets and it will take a full blown war with North Korea to teach these American traitors a lesson. You will lose everything.

  14. tmp says:

    I have the impression that the Chinese (government or entrepreneurs) are shortening their distance from the west more in the more recent fronts of the pharma/biotech field, esp in immunotherapy and gene therapy, where we haven’t had too much of a head start here yet. I don’t have data to support how fast they are advancing in these areas so comments from Derek or others who know are appreciated.

  15. yfp says:

    If one follows the grand scheme designed in the “Brave New World” by Huxley, U.S. has quite few alphas, China has a lot of betas but very few alphas. The true bold, creative, enterprising alphas in US will survive or thrive. The betas in US who do not want to think or can not think will be replace by their counterpart in China with better working ethic and longer working hour endurance. I have encountered many betas here(US) who aspires to be alpha through constant self-promoting and social net working. I do not what will happen to them.

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