All Eyes on China Drug Safety

The execution of the former head of China's State Food & Drug Administration signals the government's intent to crack down on illegal activity in pharmaceuticals

Corner-cutting drug makers can no longer get away with murder - at least that was the message the government sent down in July. The execution of Zheng Xiaoyu, the former head of China's State Food and Drug Administration (SFDA) who was convicted of taking bribes to approve drugs, was a decisive move by Beijing.

In recent times, disgraced top officials have usually had their death sentences commuted to jail terms. Zheng's execution signaled the government's intent to crack down on illegal activity in the pharmaceuticals sector.

Responding to questions on the situation, an SFDA spokesperson admitted that China "started late and our foundation for this [regulatory] work is weak."

DOWNWARD SPIRAL
But by the time Zheng's sentence was handed down, the beleaguered agency was up to its neck in a far more wide-ranging crisis over product safety.

The problems started in June when US authorities recalled Chinese-made pet food after contaminated shipments were blamed for the death of 4,000 American pets. Then came warnings of tainted toothpaste, seafood and cough medicine - all wholly or partly made in China.

No matter what Beijing did - China's first five-year plan to improve food and drug safety standards was unveiled and US$1.2 billion was pledged to the cause - things seemed to get worse. In August, US toymaker Mattel and its Fisher-Price subsidiary issued two recalls of around 20 million products made by Chinese sub-contractors due to safety concerns.

This has inflicted considerable damage on China's international reputation as trade partners question the country's ability to meet required quality standards across a string of industries. But those involved in the pharma sector are hoping that the bigger the embarrassment, the more effective the regulatory response.

"Is all of the adverse publicity from these safety concerns enough to push things over the edge?" said Ray Hill, general manager of global consulting at health industry consultancy IMS.

"The government is under huge pressure and, from what I have seen, it seems they will crackdown on the [pharmaceutical] manufacturers," Hill added.

Many of the problems stem from the way in which health care is structured in China. In addition to the SFDA, the ministries of health and commerce, the National Development and Reform Commission, insurance bureaus and the military all have some say over the industry, whether it is pricing, licensing, hospitals, distribution or reimbursement.

"There are so many different players at regional and national level that the coordination is often counterproductive," said Eric Zwisler, CEO of Zuellig Pharma China, which distributes pharmaceuticals in China for multinationals (MNCs).

"It is very difficult to enforce standards as this has to be done at local level."

SCATTERED FAR AND WIDE
The companies are even more fragmented than the regulators. According to IMS, there are 10,000 drug distributors, 230,000 pharmacies (of which 3,000 are properly certified) in China as well as countless manufacturers.

Beijing has been promising consolidation for some years and, while it appears to be the natural way forward, Hill claims to have seen little progress.

In such a climate, corruption is rife and local authorities go against central government reforms to ensure their GDP is not hit by cutbacks.

All this might seem sufficient to put off the keenest of foreign investors. It isn't. The Big Pharma heavyweights - Pfizer, GlaxoSmithKline (GSK), Sanofi-Aventis, Novartis, Roche, AstraZeneca (AZ) et al - are spending big money in China.

Clinical trials and medicine materials production were shipped to the country initially because of low cost. But as costs mount and the quantity and difficulty of the research work carried out in China - either at companies' own facilities or sub-contracted to local pharma firms - rises, other factors become more important.

"Cost is increasingly insignificant," said Dr Zang Jingwu, head of GSK R&D in China. "What is more important is that domestic companies have huge talent pools and do high quality work."