In the weeks since Tu Youyou was awarded a Nobel Prize for her contributions towards fighting malaria (see WiC 299), the role that Chinese companies play in the pharmaceutical market has received renewed interest.
The vital chemical Tu and her team discovered in the 1970s has since become the primary ingredient in preventative treatments for malaria.
According to the World Health Organisation (WHO), 240 million people in sub-Saharan Africa have been treated with artemisinin products since 2000, saving over a million lives.
Figures from Southern Weekend value the yearly global trade of artemisinin-based products at $1.5 billion, but contend that Chinese companies – despite pioneering the drug’s use – only hold a 1% share (by value) of the market.
Since its discovery of the compound, China has remained at the low-end of the supply chain. Artemisinin is extracted from sweet wormwood, and the complete production process – from plant to drug – involves several stages. The majority of Chinese companies work in planting and extraction, where the profit margins are the thinnest.
According to National Business Daily, China provides 70% of the raw materials needed for artemisinin derivatives, but its top producing area in Chongqing only earns Rmb100 million ($15.6 million) a year from its sales.
Why has China failed to move up the supply chain? Firstly, the domestic industry is poorly regulated. National Business Daily comments, “There is no industry organisation or cooperation systems in place, so the industry is heavily affected by price cycles, which are an enormous harm to the sector’s long term development.”
In 2011, when supply was scarce, the price of sweet wormwood reached Rmb5,000 per kilogramme. This encouraged more companies to enter the market, subsequently forcing the price down to Rmb2,000 per kilogramme.
Even though Chinese companies are capable of producing finished artemisinin-based products, they have been unable to expand sales overseas. This has restricted their distribution mostly to the domestic market, where demand is lower.
Chinese producers have struggled to expand internationally because countries where demand is highest often have low-income economies and thus rely on supplies subsidised by the WHO. These account for roughly 80% of the global market. In order to be supplied by the WHO, pharmaceutical firms need to pass its prequalification programme (PQ). According to China Daily, Guilin Pharmaceuticals is the only domestic supplier to have obtained a PQ certificate (it’s a subsidiary of Shanghai-based Fosun; for more on this conglomerate see WiC297).
A Chinese medical researcher suggests that the language barrier coupled with a lack of specialist advisers has prevented Chinese pharmaceuticals firms from passing PQ applications.
Southern Weekend adds that the weak knowledge of patenting on the Chinese side gave Western companies an opportunity to patent artemisinin products early on, relegating Chinese firms to the lower end of the supply chain. Swiss giant Novartis and French firm Sanofi are the WHO’s official suppliers of atemisinin, even though they both buy their raw products from China.
The Chinese Medicine Supplements Imports and Exports Committee suggests that its members’ exports earned $2.23 billion in the first seven months of 2015, but 57% was generated by sales of raw plant extracts – such as sweet wormwood.
According to the head of the committee, the majority of these raw extracts are exported to countries such as Germany and Japan where they are modified further, to be sold as a finished product for higher returns.
The story may sound familiar. A similar situation has also plagued Chinese rare earth producers, Time Weekly notes. Industry insiders now hope they can capture more of the value from China’s raw materials in producing artemisinin in the future. “Now that Professor Tu has won the Nobel Prize, we are very hopeful that the artemisinin production industry can obtain greater policy support and reform its confused structure,” said Dai Xiaochang, director of KPC.
KPC is a subsidiary of Holley Pharmaceuticals and is responsible for the parent’s artemisinin production. According to Time Weekly, KPC makes seven artemisinin-based products, two of which have already achieved basic recognition by the WHO. These two derivatives – one intravenous and one enteral – are currently being reviewed for PQ certification.
Despite lacking PQ certification, KPC has already expanded impressively into the international market. KPC’s raw and prepared products have patents in 49 countries, and account for nearly half of anti-malarials provided by the Chinese government as foreign aid.
KPC is not the only domestic producer to use government subsidy’s as a means to expand its international footprint. New South Pharmaceuticals, another Chinese healthcare firm, has bypassed the WHO and struck deals directly with governments in nations where malaria is endemic, offering drugs and healthcare services. The director of New South claims it now sells in 19 African countries.
Africa is a natural target market for Chinese artemisinin producers. Thanks to the “One Belt, One Road” policy, more opportunities have also arisen for suppliers to sell medication to companies such as Sinopec and Huawei, as they move into Africa, bringing teams of their own people.
But increasing sales of anti-malarial drugs is not the only incentive for China’s pharmaceutical firms to establish themselves across Africa. The deputy CEO of New South explains that the artemisinin business can be used to encourage the development of other commercial interests too.
Time Weekly looks at the scope of Holley Pharmaceuticals’ wider African horizons, pointing out that in addition to artemisinin it has business interests in smart grid development and engineering.
But as much as artemisinin might be used as a key to unlock further business prospects, the chemical itself has potential to be used in other medical treatments. At Guangzhou University of Chinese Medicine, researchers are currently investigating its application as a cancer-fighting drug.
According to Li Guoqiao, chief professor of the college, treatments using artemisinin are less damaging to the body and the immune system than chemotherapy. But he admits that clinical trials are still in their infancy. “At the moment, we’re testing different compositions. The results of perhaps two or three compounds have clearly surpassed those of chemotherapy.”
Completion of clinical trials is an important step in allowing Chinese firms to get a foothold in the international market. Patents in Traditional Chinese Medicine have always been difficult to obtain, because their composite nature makes it difficult to isolate the effective chemical (see WiC299). Combining traditional treatments with stringent clinical trials, such as in the case above in Guangzhou, could allow Chinese manufacturers to patent products early, and thus move up the value curve.
Improving their position may prove essential. In recent years, Sanofi, with the aid of the WHO, has been experimenting with the production of artificial artemisinin. Currently, the costs of doing so make it unviable, but should these costs decrease, Chinese artemisinin suppliers might find themselves cut out of even the lower end of the supply chain, as Sanofi’s man-made artemisinin hits the market.
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