China considers stripping layers from medicine supply chains

Cathy Roberson

As China evolves into a major global economic player, its healthcare market is undergoing an evolution to meet not only the country’s global goals, but the needs of its population.

 According to the IMS Institute for Health Care Informatics, China is the second-biggest pharmaceutical market in the world after the U.S. at about $115 billion and expectations of reaching $190 billion by 2020. Among the healthcare areas in which the Chinese government is said to be considering  streamlining is the distribution of pharmaceuticals and clinical trials.

Medicine distribution

According to various publications, plans are in place to reduce the number of stages it takes to distribute a drug.

Under the previous system, there were various layers of distributors including provincial, municipal, public hospitals, private institution and more. Under the new mandate, the process is expected to be reduced to two steps - from drugmakers to one distributor and hospitals or pharmacies. As a result, the revised system will mandate only two tax slips per transaction.

Sinopharm Group is managed by State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and is the largest distributor within China. The Group has over 50 distribution centers. It provides supply chain management services for the distribution of domestic and imported prescription drugs and over-the-counter medicines from manufacturers, suppliers, hospitals, other wholesalers, retail drug stores and other customers.

Besides distribution services, Sinopharm Group also runs a medical retail business via its GuoDa Pharmacy; is a pharmaceutical and medical device manufacturer; offers a traditional and herbal medicine business; R&D and finally an import and export business via China National Pharmaceutical Foreign Trade Corporation.

As the Chinese government reduces distributor layers, a potential victim is that of US drug distributor, Cardinal Health who is putting its China business up for sale. According to Reuters, Cardinal’s China business runs 16 distribution centers in twenty cities and generated $3.5 billion in revenue in 2016. Cardinal is considered the third largest distributor in China, thanks to acquisitions it has made over the years. Reuters further notes that Cardinal wants to exit China because the reforms could slow its growth.

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As regulations look to make the necessary changes, what is currently considered the second-biggest pharmaceutical market will one day become the largest ....

Clinical Trials

In mid-March, China’s Food and Drug Administration (CFDA) introduced guidelines proposing that multinational pharmaceutical companies to run Phase 1 trials in China. Currently, a company can only run a Phase 1 trial in China after it has at least entered phase 2 testing in another country.

CFDA would also allow foreign companies to use multi-regional clinical trial data to support new drug applications in China as long as the trial design fits China’s technical guidelines. This means that companies would no longer need to conduct a second local trial in China after running their global trials.

The change removes an additional bureaucratic layer and companies would only have to file two applications rather than three applications for registering a drug in China.

In a statement to Fierce Pharma, Pfizer commented, “When finalized and implemented, these policies will encourage biopharmaceutical innovation and accelerate the approval process for new medicines,” Adding that, they will also pave the way for China's integration into the system for multiregional clinical trials that undergirds global drug development.”  

Once the guidelines are approved, the CFDA plans to hire more employees to review an anticipated increase in trial submissions.

From a logistics perspective, niche clinical trials logistics provider, Marken, now owned by UPS, will likely benefit from this Phase 1 trial expansion. The company has offices in Beijing and Shanghai as well as a depot in Beijing.

Previously in 2012, UPS opened two healthcare distribution centers in Hangzhou and Shanghai. FedEx is another potential winner as it expanded its China facilities as well as service offerings to meet the growing need for pharmaceutical logistics and transportation services.

Lastly, DHL which has established a life science competency hub in China and also offers numerous services to support the domestic and international pharmaceutical industry.

More Changes

More changes are expected however there are many challenges. The Cheung Kong Graduate School of Business notes that healthcare in China has suffered from bribery scandals, involving underpaid doctors and hospitals reliant on drug sales.

As regulations look to make the necessary changes, what is currently considered the second-biggest pharmaceutical market will one day become the largest and with that will could bring more opportunities for logistics and transportation providers as well as the global pharmaceutical community.