The regulatory system for drugs in China has improved since officials put the head of the country's FDA to death six years ago for accepting bribes, but the struggle is still uphill for drug developers inside the country and those trying to gain entry.

And the specter of corruption is never far away: News broke last week that executives at London-based Glaxosmithkline plc's headquarters in China were being detained, under investigation for "economic crimes" in the form of allegedly improper payments made to local gatekeepers.

Meanwhile, the country is working to raise its international profile, and improve a tainted reputation with regard to drug safety.

"It's actually now happening, but in terms of building a momentum of Chinese advantage throughout the whole world, I would say it's at least 10 years [away]," said Lewis Ho, leader of the life-sciences practice in Asia for the law firm Dechert LLP.

Others are more skeptical about markets such as Brazil, Russia, India and China (BRIC), predicting that the outlook for drug developers seeking to establish footprints in those territories is worse than believed, and may not improve, as a Frost & Sullivan report forecasted recently. (See BioWorld Today, June 12, 2013.)

Ho played an important role in helping GSK set up a freestanding research and development facility in China, the first of its kind there, about eight years ago. Other big pharma firms have since followed.

"China has become a market you can't ignore," Ho noted. "It's the third largest market, and soon will become the second largest market."

He called the setting up of GSK's plant "quite an interesting exercise," that required navigating China's bureaucracy. The payoff seemed worthwhile, at least to GSK. "The benefit and the beauty is that you can keep everything as your own," Ho said. "There's no need to share competitive information or intellectual property [IP} with others."

It was payoffs of another kind that had the media overseas and stateside last week abuzz, as word spread of the GSK probe. In Shanghai, where the pharma giant maintains its Chinese headquarters, a finance manager reportedly was being held.

File Early for Clinical Trials

For smaller, but no less ambitious firms than GSK, other routes into China must be found.

"Ten years ago, you did need a Chinese company [to joint-venture with]," Ho said, though such activity has died down somewhat in the last five years, "because in some ways the Chinese government relaxed the rules and allowed foreign companies setting up wholly owned subsidiaries in China. We see a lot of foreign companies doing their own projects in China."

The joint venture has made a comeback, since "Chinese companies do contribute to the research, clinical development, drug registration, manufacture and sales activities," Ho said, thanks partly to government funding that allows Chinese firms to help with costly clinical studies. "The way it works is, the Chinese companies license in the product, and the Chinese run the clinical trial in China," he said. "If [the drug candidate] becomes a successful product, then the Chinese company keeps the Chinese rights and the originator keeps the rest of the world, probably sharing the Chinese data in support of drug applications elsewhere."

The major pharma players in China now are "basically distributors," Ho said. "No foreign company can compete with Chinese companies in terms of distribution. Of course, the margin is not great, but they just monopolized the whole Chinese market."

But even that is no longer enough, he said. "They need to have their own pipeline, they need to know how to make innovative drugs. Of course, it's still a little bit of a dream that a Chinese company would have a Chinese-made blockbuster that is of benefit to the whole world, but I think that's the direction they are pushing along, under pressure of the Chinese government."

During the last five years or so, that pressure has only increased. "If you've got a monopoly in China selling drugs, you make a fortune, but you need to pay back, make the next blockbusters," in the government's view, Ho said. The Chinese firms are "looking for scientists, looking for technology, looking for the pipeline – looking for how to make the next new drug."

Of course, that's been the aim of U.S. biotech firms since the industry began.

"We see more and more medium-sized companies, and biotech companies, starting to look at China as a potential market," Ho said. Regarding the best way to enter, "I don't think we have one solution that fits all. It depends on the development stage of your pipeline, and also what you are trying to achieve. Most companies would like to get quick access to the Chinese market as soon as possible, so they want to speed up the clinical trial and drug registration processes," he said.

This isn't practical at least at the moment, Ho said, but some companies are changing their filing practices in China – because they must.

"Five or 10 years ago, people would probably finish their U.S. FDA registration before they started to do their application in China," Ho told BioWorld Today. "We now see more multicenter applications for clinical trials, which they run parallel in China and other countries."

More Transparency, but Still . . .

In China, the working definition of a new chemical entity (the prized NCE, a requirement for data exclusivity) is that it be the first such drug in the world, not just in that country. Because of that, Ho has one client that filed its drug application in China before anywhere else, he said. "Some companies prefer to change their working practices, just to try to accommodate the CFDA's requirements."

Despite the tricky environment, "we do see more and more biotech companies now," Ho said. "Either they do it on their own, or they try to work with the growing number of Chinese pharma companies to navigate the market. We're working with a number of them to help them either shape up or formulate their China strategies, from design of clinical trials to drug registration and IP protection strategies to partnership options for manufacture, sales and marketing."

Approaches vary. "They might try one or two of their mature products as a test case to get insight to the Chinese market, and withhold their key products for the moment," Ho said. "They feel it's a bit safer to save some of their best bullets. They may license one product to a CMO in China, and rely on them for drug registration and marketing. Then, for their key product, they would rely on their own sales force. They probably recruit 100 or 200 salespeople for one product covering the whole China, and they would merely use the Chinese company as the distributor. It really depends on whether the product is important to them in the pipeline, and how they see the market potential."

Deals, in any case, are happening more often. "Ten or 15 years ago, a company would just outsource basic research steps to China for cost saving," Ho said. "But now we see more collaborations with the Chinese companies with innovative contributions, which are likely to be named as inventors and co-own the results. It's more balanced now, not just one company with money and with the know-how passed on to Chinese. It's not as one-sided as before."

With biotech especially, "people will have to rely more on the Chinese partner in terms of navigating the Chinese market, and getting drugs approved, marketed and distributed in China," Ho said. "IP protection will be even more important, because they don't have the resources like GSK and Pfizer, who can do everything in-house. They have to rely more on external resources in order to help them accomplish their goals in China."

Ho conceded that the red tape in China, not to mention the corruption, remains a hurdle.

"They don't have very consistent and transparent working practices in some ways, so it's subject to lots of individual assessment," he said. "You don't see a lot of consistency. People find it very frustrating and complicated. It's improved a lot in the last five years," after China executed by injection Zheng Xiaoyu, chief of the FDA, in July 2007.

Xiaoyu cleared for marketing a flood of new products in China during his eight years in office, mostly from a handful of companies that bribed him. Included was the Anhui Huayan Biology Pharmacy Co., an antibiotics firm that sold a drug called Xinfu (clindamycin), badly manufactured, which led to hundreds of deaths and illnesses. A year before Xiaoyu's execution, the firm's CEO hanged himself.

"We see more transparency, more improvement in terms of working practices, but we have a long way to go," Ho said.