Made in China: Generic Drugs

The concept of receiving medical treatment in or from a developing nation may alarm some people because of horror stories about black market organs or bad medical procedures. However, people often blindly trust the medications they purchase over the counter or through a pharmacist. The “Made in China” label is put on more than just shirts and soccer balls. Many generic drugs, or the active ingredients that comprise them, are made in China. Historically, they have been rife with quality control issues, but there is huge potential for that to change.

Pressed between the second largest pharmaceutical market behind the US and the growing cost of Western medicines, China’s plan to develop massive pharmaceutical production capacities is expected. In the early stages, China’s expertise was built around replicating existing drugs. In return, generics offered China great cost savings opportunities without the risks associated with ground up research and development. These cost savings have even been passed along to Western nations with finished medication and raw products such as active ingredients.

Despite the potential for Chinese manufactures to provide low cost alternatives, the quality of Chinese generic medications has been subject of significant scrutiny for lack of regulatory enforcement. The bevy of problems includes ineffective or fake drugs with little to no active ingredient and drugs riddled with impurities that cause adverse medical reactions. For example, the heparin scandal of 2008 hit the US and Germany and resulted 81 deaths, hundreds of allergic reactions, major recalls and unexpected hospital expenses. The problem is only exacerbated when Chinese manufactures sell to other developing nations. In 2011, the World Health Organization found that 64% of antimalarial drugs sold in Nigeria were fake with 70% being imported from China and India. The problem is also troublesome internally to China as pharmaceuticals are one of China’s largest imports with the growing middle class becoming weary of local  pharmaceutical manufactures.

Chinese attempts to regulate its pharmaceutical manufacturers has been less than ideal. In 2016, the China Food and Drug Administration (CFDA) ordered “self-examinations” on 1,622 applications for new drugs as an opportunity to withdraw problematic filings without repercussions. Of those applicants, 1,193 (83% withdrawal) were withdrawn for various reasons ranging from fraudulent or incomplete data to noncompliance with Good Clinical Practices (GCP) or Good Manufacturing Practices (GMP). The self-examination exercise has revealed serious issues with consistent and reliable clinical research.

One of the main problems facing the Chinese pharmaceutical industry is its high level of fragmentation. Fragmentation increases cost competition and drives R&D investment down. For the pharmaceutical industry, R&D is vital to keeping an edge above the competition. For Chinese pharmaceutical companies, R&D investment averages around 5%, compared to 20% for US pharmaceutical companies. In an attempt to consolidate the industry, the Chinese government through the CFDA is significantly increased the stringency of safety and testing requirements, and as a result the cost associated with passing those requirements. President Xi is hoping these measures will help separate the wheat from the chaff, enabling the strong to increase its economies of scale.