Uncertain Times: New Lockdowns, Ukraine Challenge Chinese Pharma
Executive Summary
As residents of China's largest city brace for a possible prolonged lockdown, the gathering COVID-19 outbreak is set to cause some pharma disruption in the country, while broader geopolitical factors including Ukraine are hindering the industry's global ambitions.
Going into the third year of the global pandemic, residents of China's largest city are feeling uncertainty around potential extended lockdowns for the first time, the impact of which could affect a major research and headquarters hub for the pharma industry in the country.
Shanghai is reporting record numbers of COVID-19 infections, official data pointing to 977 asymptomatic cases and four confirmed infections as of 23 March, while the uptrend is also continuing in the northeastern Jilin province, which reported 2,320 confirmed infections and 528 asymptomatic cases. The ongoing wave of infections has now spread to 28 of China's 31 provinces.
The figures are the highest in China since the outbreak originated in Wuhan in January 2020. Shanghai has already moved into a partial lockdown, with rumors swirling and residents rushing to stock up on supplies.
Many employees in Shanghai, which many pharma firms and biotech companies call home, have moved to remote working from home, while in nearby Suzhou, where innovative drug and biotech companies are also clustered, the city has restricted the flow of people from its large neighbor and planned industry conferences are being moved online.
Jilin province is also home to several major domestic drug manufacturers, including one of China's largest insulin maker Tonghua Dongbao Pharmaceutical Co Ltd, and the strict lockdown measures are expected to impact the supply chain for the product.
Geopolitical Factors Dent Global Ambitions
The new outbreak pressures come on top of the ongoing regulatory crackdown on the nation’s tech giants, under which some companies are planning to lay off up to 20% of their workforce, while the US-China decoupling is continuing with Washington enforcing rule requiring US-listed Chinese companies to comply with rules for US audits, something Chinese regulators have refused in the past (see side bar).
China’s position on the Ukraine conflict is also weighing heavily. Beijing has so far not clearly denounced the Russian invasion and has suggested that the West, led by the US, is effectively meddling, a position not softened by a two-hour video conference between President Xi Jinping and US President Joe Biden. Although not a staunch supporter of Russia, Beijing could leverage its economic power, but its apparent pro-Russia stance and increasing isolation could see selected Chinese businesses to potential sanctions if evidence of lifelines to the Kremlin is substantiated.
In the pharma sector, in March last year, a little-known Shenzhen-based contract manufacturing organization, Yuanxing Gene Tech, signed a manufacturing and supply deal with the Russia Direct Investment Fund to supply 60 million doses of the Sputnik V COVID-19 vaccine, with production set to start in May 2021.
In a note posted on its website this March, the Chinese firm - which specializes in producing adenovirus vectors for vaccines - noted it had already completed the supply contract for the Russians.
But several other Chinese pharma companies are currently affected by the Ukraine conflict, including Shanghai Henlius Biotech Co. Ltd., which had been conducting clinical trials of its biosimilars in the county. With Eastern Europe seen as part of China’s huge "Belt and Road" global infrastructure support initiative, drug makers are being encouraged to expand the supply of cost-effective medicines in Eastern Europe.
Henlius has already obtained EU approval for its biosimilar trastuzumab Hanquyou (Zercepac in Europe) and through its partnership with Accord Healthcare Ltd. in the UK, markets the drug in 17 countries. The Chinese firm is conducting a global Phase III trial at sites in Ukraine, Poland and the Philippines for the product, also known as HLX02.
Facing steep price cuts driven by centralized procurement rounds at home, some other Chinese insulin and biosimilar producers like Beijing-based Gan & Lee Pharmaceuticals are also hoping to ride the Belt and Road initiative and place bets on emerging market opportunities to expand to overseas. But the rising geopolitical risks may now hinder that ambition.
The Commonwealth of Independent States, of which Ukraine was a founding state but did not become a formal member, has long been seen as a breakthrough market for Chinese pharma firms, given its market size and potential, and many have been conducting studies for biologics in particular, with a hope for quick market launches.