Report From: China - Pharmaceutical Technology

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Report From: China
With government support, China's pharmaceutical equipment sector is trekking ahead despite challenges regarding the country's overall perceived product quality.

Pharmaceutical Technology
Volume 32, Issue 11, pp. 18-33

Another challenge: intellectual property (IP). IP rights remain a thorny issue for foreign companies trying to do business in China. CAPE initiated an IP-strategy training program to educate industry players on various aspects of IP rights last year. But what remains to be seen is the level of confidence that investors have in China, which depends largely on the provisions that the government is willing to initiate in the future.

Given the current state of development, some experts are urging the government to consider consolidating options in a move to overcome current challenges. Shanghai-based marketing program manager of Agilent Technologies China, Chen-Jie Zhuang, is optimistic that this move would be beneficial to the pharmaceutical equipment industry and would accelerate growth in a more competitive and healthy way. "Merger and acquisition activities will increase as foreign investment increases," he says. "Contract research and contract manufacturing organizations are booming. Global companies will continue to invest heavily in China R&D, manufacturing, clinical research, over-the-counter marketing and distribution channels. This cross-culture development will generate a win–win situation for the industry."

BMI, on the other hand, believes mergers and acquisitions, along with the closure of inefficient operations will result in lower revenues as the number of drug manufacturers decreases. This can be mitigated, however, by the gradual introduction of high-tech machines that command higher prices, according to BMI.

On the positive side, China's WTO (World Trade Organization) status benefits foreign firms in the form of reduced custom fees. In 2005, custom fees fell to 3.9%, which gave countries such as Germany the opportunity to export approximately €267.4 million ($378.2 million) worth of analytical and laboratory equipment, making it China's third largest importer after Japan and the US.

To boost the sector's growth in China, CAPE has been encouraging cooperative exchanges and alliances. To date, many foreign firms have set foot on Chinese soil. The Italian-based IMG Group teamed up with Zibo IMA Xinhua Pharmatech (Zibo City, Shandong Province) to penetrate the machine- assembly market in 2003. Earlier this year, Tokyo-based Eisai established the subsidiary Eisai Machinery Shanghai to increase its sales and manufacturing support presence in China.

As the market demonstrates, today's business environment clearly favors international firms. But does that mean that local companies in China will lose their market position in the face of competition?

According to Zhuang, foreign firms are not even close to dominating the Chinese sector. "Over 700 foreign-invested companies serve only 20–30% of the China [pharmaceutical] market today although they manufacture 20 of the 50 most popular local brands. The top 10 pharmaceutical companies take a 20% share of the China market compared to 50% in Western countries," he says.

So, all is not lost for local pharmaceutical equipment manufacturers. The introduction of good manufacturing practice (GMP) in China in 1998 was a turning point for the sector as it contributed to good standards and quality products. In fact, more than 3200 companies out of more than 5000 in the country passed the first round of GMP certification before the July 1, 2004, deadline. After July 2004, firms stepped up their game by ensuring that their equipment was upgraded to meet higher CGMP standards for exports.

GMP certification of pharmaceutical machinery also brought about several market advantages for local firms in the areas of processing techniques and drug quality. The emergence of more enterprises and product varieties, according to Shi Qing, vice-president and secretary-general of CAPE, helped as well.

For example, Hualian Pharmaceutical Machinery (Rui'an City, Zheijiang Province) received several accolades, including State Gold Medals and a State Star Plan for its research and design of packaging machines, and its traditional Chinese medicine extraction and concentrating equipment. It was also the first company to pass the ISO 9001 International Quality Certification.

One important step may be for the government to establish a regulatory system to enforce market credibility. Says Zhuang, "Ideally, the system should be designed to minimize administrative burdens for both agencies and manufacturers. There is not a one-size-fits-all solution; it should be designed in a way that allows pharmaceutical experts to carry out their functions efficiently."

Jane Wan is a freelance writer based in Singapore.


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