China Releases New Drug GMPs; Domestic Consolidation Expected To Accelerate

SHANGHAI - China's State FDA released its long-awaited good manufacturing practices guidelines for pharmaceutical products Feb. 12, which will begin to be implemented in all new drug manufacturing sites in March.

After five years of drafting and two rounds of public consultations, the new 2010 GMP edition introduces the latest quality control system to more than 4,700 drug manufacturers in China with expanded standards covering 313 items compared to 88 items in the GMP 1998 edition, which was released in 1999.

The 2010 edition brings in concepts from global standards such as the International Conference on Harmonization and World Health Organization GMP standards, Li Lei, an attorney with the global law firm Sidley Austin, told PharmAsia News in an interview. The new standards also raise many requirements to global standards such as more stringent sterilization requirements.

The expanded GMPs include quality control tools such as quality risk management, corrective and preventive action (CAPA) reporting, supplier audits and adverse drug event reporting (ADE), Li noted.

Katherine Wang, an attorney at Sidley's Los Angeles office and the former general counsel for Asia Pacific for AstraZeneca, noted that SFDA is shifting its focus to overall quality control for drug manufacturing processes instead of simply enforcing technical standards of manufacturing facilities. "While the '98 edition focuses on the 'hardware,' the new GMP is more emphasizing 'software' to establish a complete quality system," she said.

Five-year Grace Period, Except For High-risk Products; Consolidation Expected

According to SFDA, all drug makers in China will need to implement the new GMP standards in five years, which is longer than the formerly rumored three years. For some high-risk products such as injectables, vaccines and blood products, the transition period will be shortened. If manufacturers fail to meet the deadlines, their operations will be suspended.

As industry watchers have long predicted, the new guidelines will likely eliminate many of China's smaller drug makers or force them to consolidate.

"It signals the government's concerns on the local small- and mid-size companies' capabilities to comply with the new GMPs, given the upgrade is a money- and- time-consuming process," Sidley's Li said.

"We see the more stringent new GMP guidelines as a long-term positive for the drug sector as it may help industry consolidation by rooting out small firms lacking financial resources to bring their facilities into compliance," Bin Li, executive director at Morgan Stanley's research department, wrote in a Feb. 14 note to investors.

SFDA officials estimate that the entire sector may need to invest RMB 200-300 billion ($30-$45 billion) to upgrade facilities. That means that a "typical drug company" may need to spend RMB 10-30 million, Morgan Stanley said (Also see "Pharmatech Associates Bikash Chatterjee And Chat Kwan On China's Shift To A Global Standard With New GMP Guidelines: An Interview With PharmAsia News" - Scrip, 15 Jan, 2010.).

"Hence, we think some small-size drug companies will not have the financial resources to continue operating independently," Li said, although he cautioned that "one will see quite a few companies manage to squeeze by the new GMP with help from local governments."

Analysts forecast that local industry consolidators such as Sino Biopharma, Sihuan Pharmceutical Holdings Group and Simcere Pharmaceutical Group should benefit from the trend of industry consolidation.

"Simcere, Sihuan, Guangzhou Pharma and United Labs are better prepared as their new facilities are designed to meet the new standard and their existing facilities either have already met the new standard or only need incremental spending to upgrade," Citi analyst Richard Yeh said in a second-day note.

The new guidelines will be the "catalyst for the consolidation of the drug manufacturing industry," Deutsche Bank analysts concurred, adding that existing leading manufacturers "will be able to expand their product mix through M&A and gain market share."

However, Sidley's Li pointed out that drug makers won't be able to comply with the new GMPs by simply injecting funds into their facilities. They will also need to invest in training their employees to establish comprehensive quality control systems, he stressed.

MNCs Should Note Unique Requirements

While small- and mid-size local pharma companies might be filtered out by the considerable financial investment, multinational pharma companies operating in China should have little difficulty in adapting to the new standards. However, they will need to review their manufacturing practices comprehensively to ensure full compliance because China's GMP 2010 standards contain numerous unique requirements that are different from the U.S. and ICH/EU GMPs, Sidley's Li said.

"Moreover, they also need to take new GMP standards into account in their M&A and joint venture projects in China to ensure their acquisition targets or joint venture partners comply with GMP 2010," he added.

For example, the guidelines detail the responsibility of quality personnel and define the role of the company head, manufacturing and quality managers, and provide further details on the quality attorney system, which was implemented in 2009 (Also see "China Implements New Quality System To Strengthen Drug Safety; Puts Legal Onus On Drug Quality Attorneys" - Scrip, 22 Apr, 2009.).

"MNCs also need to adjust their strategy in China, because the new GMP will totally change the drug industry in the next five years," Li added.

Implementation = Key To Success

SFDA is currently drafting implementation regulations for GMP 2010, which are expected to be released before March 1. Meanwhile, the regulator has already finished the development of GMP specifications for five particular categories of drug products in appendices that will be published "in the near future," Li said.

"We see the implementation as key to success," said Sidley's Wang. "SFDA has to retrain their GMP inspectors to better understand the new conceptions in GMP."

Moreover, MNCs that have experience in global GMP standards can help SFDA inspectors to improve their understanding of China's new GMPs, Wang said, noting that Sidley would also be hosting workshops to help train SFDA GMP inspectors.

When U.S. FDA opened three offices in China to conduct GMP inspections on products exported to the U.S., China said it would also establish a U.S. office to inspect pharmaceutical products that are imported to China from the U.S. (Also see "China Releases Strictest Ever GMP Draft Guidelines; Laxer Standards Urged For Local Companies" - Scrip, 13 Oct, 2009.).

However, SFDA is short of human resources to conduct GMP inspections on the more than 4,700 drug makers in China, and it is "very unlikely that they would inspect import drug makers under the new GMP standards in the near future," Wang said.

This year, aside from drug GMPs, SFDA will likely turn its attention to quality control standards for devices, Wang predicted, and the agency may also unveil its adverse drug reaction reporting regulation and good clinical practices regulation in 2011.

- Dai Jialing ([email protected])