February 2013

   

 

TopBioMarketing    Insight 

Newsletter 

Pharma, Biotech & Medical Device  

Greetings!

 

Welcome to BioMarketing Insight's monthly newsletter.

 

The pharma/biotech industry has actively pursued the emerging markets due to over-saturation of the US and European markets. In addition, cost-cutting measures have become dominant. Last month, I briefly covered the regulatory environment for pharma/biotech and medical devices for the BRICK countries Brazil, Russia, and India. This month I will cover China, South Korea and a few beyond.

 

Read on to learn more about this topic and other current news. On the right are quick links to the topics covered in this month's newsletter. The next newsletter will be published on March 15th.


We encourage you to share this newsletter with your colleagues by using the social media icons at the top left, or by simply forwarding the newsletter via email.

 

Please email me, Regina Au, if you have any questions, comments, or suggestions.

 

 

Sincerely,

Regina Au

Principal, Strategic Marketing Consultant

BioMarketing Insight 

 

 

In This Issue
Emerging Markets' Regulatory Environment for Pharma/Biotech and Medical Device, Part 2 of 2
China
South Korea
Updates: Pakistan, Egypt & Malaysia
Closing Thoughts
New Technology - Aortic Valve Replacement That Doesn't Require Major Surgery.
Twenty-five Medical Device and Thirteen Pharma/Biotech Funding Deals
Twenty-seven Mergers & Acquisitions
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BioMarketing Insight Services

 

Emerging Markets' Regulatory Environment for Pharma/Biotech and Medical Device, Part 2 of 2 

 

Reuters reported that in 2012, pharma companies have invested $20 billion into emerging markets, approximately a 65% increase over last year.  A report from Freshfields, the London-based global law firm, said $6.8 billion had gone into China, because China is forecast to be the second-largest drug market behind the U.S. by 2016, according to IMS Health. China is very attractive to drug makers because the market is projected to grow by 15% to 18% a year, from $155 billion and $165 billion in four years (2016), compared to flat sales in Western markets.

 

However, drug companies should proceed with caution because political issues and the world economic state could cause this growing market to struggle as well. "While M&A is an expensive remedy, 'pharmerging' markets are obvious investment choices for cash-rich drug companies," Freshfields corporate partner Jennifer Bethlehem told Reuters.

 

Emerging markets are for those who are willing to invest for long-term returns. In addition to language and cultural barriers, government (regulatory, business and reimbursement) barriers can be significant as well.

 

The pharma/biotech industry has already experienced regulatory barriers, with governments requiring foreign companies to use local companies to register, test, and distribute their products before being permitted to do business in that country (read below). Here is my overview, along with updates on any changes in the regulatory environment for China, South Korea and a few countries (Pakistan, Egypt, and Malaysia) beyond.

 

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 China     

China  

Pharmaceutical

 

Market entry remains difficult for many international pharmaceutical manufacturers due to China's costly, complicated, and laborious regulatory licensing requirements. International pharmaceutical firms must obtain licenses or authorizations from State Food and Drug Administration (SFDA), a government agency, before lawfully engaging in business in China.

 

Under the 2001 Drug Administration Law, licensing authority lies with the SFDA, and the licensing process consists of nine different steps, each of which will be briefly described below excerpted from an article by Qing Zhang.

 

First, a prospective pharmaceutical product manufacturer must obtain a manufacturer's license from a provincial-level branch of the SFDA by demonstrating that it has appropriate facilities, levels of staff, and other arrangements for quality control.

 

Second, a prospective new drug cannot be clinically tested on humans until the sponsor has submitted the data and related samples from the laboratory stages of research and convinced the SFDA to grant a clinical test certificate.

 

Third, a new drug certificate ("NDC") may only be obtained once the sponsor has demonstrated that its prospective new drug successfully passed laboratory and clinical tests, by which safety and efficacy are assumed. The SFDA issues the NDC after verifying this process and the data tested.

 

Fourth, a prospective manufacturer must also obtain a Production Permit Number from the SFDA before beginning to manufacture a new drug or other drugs regulated by national standards.

 

Fifth, a prospective drug wholesaler must obtain a pharmaceutical trader's license from a branch of the SFDA at the provincial level. A prospective drug retailer must do so at the county level.

Among other requirements, licensing is conditioned upon having appropriate staff, facilities, and management systems.

 

Sixth, before making medicinal preparations for patients, a medical organization must obtain prior approval from the Health Authority at the provincial level, as well as a dispensing permit issued by a branch of the SFDA at the same level. To ensure quality, licensing is granted depending upon the organization's facilities, management systems, and sanitation, as well as other requirements.

 

Seventh, drugs cannot be imported into China without a Registration Certificate for Imported Drugs ("RCID"). For a RCID to be issued, prospective importers generally must satisfy the SFDA criteria for safety and efficacy, but they may be exempt if the drug is for emergency hospital use or individual use.

 

Additionally, before every importation, the importer must obtain an imported drug customs clearance from an affiliate of the SFDA at the port designated for their drugs to enter China.

 

The 2001 Drug Administration Law no longer imposes compulsory testing on imported drugs unless they are entering China for the first time; however, a pharmaceuticals testing institute appointed by an affiliate of the SFDA will carry out selective testing on imported drugs after they enter the Chinese market.

 

Eighth, three kinds of pharmaceuticals-namely bio-products stipulated by the SFDA, drugs being sold for the first time in China, and other drugs stipulated by the State Council-must pass tests conducted by appointed institutes before being imported or marketed. This mandatory testing ("a test pass license") is a de facto licensing requirement.

 

Lastly, no over-the-counter drug can be advertised in China unless the sponsor obtains an advertising license from a branch of the SFDA at the provincial level and an advertising permit from a branch of the State Industry and Commerce Administration at the county level or above.

 

Only medicinal and pharmaceutical journals, jointly-authorized by the Health Authority under the State Council and the SFDA, can carry advertisements for prescription-only drugs.

 

Updates

 

1) Beginning Feb 1st, 2013, China will cut prices up to 20% for 400 drugs in the respiratory, fever and pain categories in order to make drugs more affordable and accessible.  This is the fourth price increase since 2011 as part of China's Healthcare Reform. Earlier rounds of price cuts included antibiotics, anti-tumor, hormonal, and blood-related medicines in addition to drugs for the circulatory, nervous, digestive and immune systems.

 

Health Minister Chen Zhu told the press that healthcare was still too expensive and there was still inadequate control over the improper use of drugs. These price cuts are affecting the Chinese drugmakers who are expanding their distribution networks to offset increasing pressure on margins.

 

2) China continues to boost the biotech industry in order to resolve issues related to population growth, food safety, energy conservation, and environmental protection, the State Council stated. 

 

The government plans to increase this sector's GDP output by an average annual rate of more than 20 percent from 2013 to 2015, according to the plan. The government also has ambitious plans to make its biotech sector a renowned industry by 2020 through improvements in that sector's innovation and technology intellect.

 

Biosimilars

 

China is expected to issue its first set of regulatory standards for companies developing biosimilars, according to industry experts.  The country is gradually moving its pharmaceutical regulations closer to international standards, aiming to speed up drug registration, the experts added.

 

Biosimilars, or follow-on biologics, are drugs deemed to be similar to an originator biologic therapy. Biologic drugs are made in living organisms or their products, as opposed to traditional pharmaceutical drugs, which are made through chemical processes.

 

The China State Food and Drug Administration (SFDA) will release a new Drug Registration Regulation after the 18th National Congress of the Communist Party, which took place in Beijing on November 8-14, 2012.

 

Details of the biosimilars guidelines are currently undergoing investigation but will be finalized after the new drug registration regulation release, said Haifeng Hu, vice president, Shanghai Institute of Pharmaceutical Industry.

 

China's healthcare reform and critical illness insurance program, issued this year, will call for a growing demand for biologics, especially for oncology drugs. Monoclonal antibodies (mAbs) are expected to be at the forefront, said Jianhoung Tao, vice president, Southern Medicine Economic Research Institute (SMEI) of SFDA.

 

Domestic biosimilars have been on the market in China for 20 years, according to SMEI data. The country has approved 382 genetically engineered drugs and genetically engineered vaccines, but only 21 products are innovative and the rest are biosimilars, according to SMEI data.

 

Biologics and biosimilars account for 10% of the total pharmaceuticals market in China, but their recent annual growth rate has reached 32.2%, according to Deloitte data.

 

Medical Device

 

There is a huge demand to upgrade the medical devices in Chinese hospitals according to Health News, an affiliate newspaper of the Health Ministry.   About 60% of all medical devices were installed before the mid-1980s, and 15% in the 1970s. This was reaffirmed at the China Med 2013 press conference.

 

China is expected to be the world's second largest market for medical devices, overtaking Japan in five to seven years, and be 25% of the world market by 2050, according to PharmaLive, a market research firm.

 

China's SFDA has reclassified 73 devices into other risk categories and removed three devices from the classification system.  Products reclassified as Class III include inhaled nitrous oxide delivery systems, ultrasonic bone surgery devices, cell sorters, and spine probes. Devices no longer classified include automatic blood bag labeling machines and gauze counting detection systems.

 

The SFDA also released new guidelines on how foreign medical device manufacturers label and package their products, according to China-briefing.com.  Companies have until April 1, 2013 to comply.

 

According to SFDA's guidelines entitled "Circular on Standardizing the Labels and Packaging Marks of Foreign Medical Devices," there are three main points to the guidelines:  

 

1) Product labeling must be in Chinese (though other languages can be added). Product labeling must be attached to any and all devices, otherwise it will be prohibited from being sold or used.

 

2) Foreign medical device companies must develop quality control practices that comply with Chinese regulations. All documentation must ensure the safety and effectiveness of the medical device sold.

 

3) "The terms and technical expressions in this Circular shall have the same meaning as those provided in the "Regulations and Administrative Measures on the Registration of Medical Devices (SFDA Order No.16).'"

 

The Beijing Drug Administration has signed a memorandum of agreement with device maker Zimmer, thus enabling company officials to train agency staff at its Montagne subsidiary there.  The training sessions will focus on strengthening the production and inspection expertise of state regulators at local device companies, to ensure the quality and safety of orthopedic devices. Zimmer employees will also receive training on Chinese laws and regulations related to the manufacture and sale of devices.

 

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South Korea

S. Korea  

The Korean Food and Drug Administration (KFDA) overseas the approval process for drugs and medical devices in addition to food and cosmetics. The details in filing for approval can be found at KFDA  

 

Pharmaceuticals

 

The objective of the approval process is to provide safe and quality drug by approving domestic drug manufacture items and imported items. The approval process is divided into two categories: 1) "Approval, items (that) need safety and efficacy review and intensive management" and 2) Notification, items (that) don't need safety and efficacy review," because the drug is already stated in the Korean and U.S. Pharmacopeia, having already obtained safety and efficacy approval.

 

According to the KFDA, in 2008, sales from the domestic pharmaceutical companies make up about 70% (70,000 billion won) of the total pharmaceutical market in Korea. Market share of multinational companies have remained relatively flat with 34% in 2002 to 35% in 2008. The Korean market has also changed from an OTC market to a prescription market. The prescription market increased from 67% in 2002 to 80% (950.9 billion won) in 2008. Sales of antibiotics are the number one category prescribed, at 67.5 billion won.

 

For these reasons, I believe multinational companies are attracted to Korea. However, this market will be tough to penetrate, since domestic companies own 70% of total sales and I suspect that the government would be inclined to favor the domestic companies.

 

Medical Devices

 

Medical devices are categorized into two regulatory paths depending on their classification: 1) Pre-market notification for Class I devices and 2) Pre-market approval for Class II, III and IV devices where Class I is the lowest risk and Class IV is the highest risk. In Vitro Diagnostic (IVD) instruments and some reagents in it are designated as Class I products; however, most IVD reagents are categorized as pharmaceutical products.  Separate regulatory approval procedures exist for IVD instruments and manual reagents. There are new regulations pending that will classify IVDs as medical devices, in order of risk, from low to high.

 

Medical devices must be approved for sale in their country-of-manufacture before they can be considered by KFDA for registration in Korea. To obtain registration of Class II or III devices, KFDA requires a documentary review of the technical file (registration dossier), as well as a local type test performed in Korea on samples imported with KFDA permission. 

 

In Feb. 2011, KFDA outsourced 100 different types of class II devices for third-party review.  Technical documents of all other class II, III and IV devices are reviewed by KFDA. Pending changes will add an additional 300 items to be outsourced by KFDA for third-party review by the end of that year and all class II devices will be outsourced for technical document reviews, eventually.

  

Imported medical devices require an original Certificate to Foreign Government (CFG) by the appropriate regulatory body in the product's country of manufacture before they can be sold in Korea.   KFDA requires foreign manufacturers to have local partners or a physical presence(business registration, along with office and warehouse space) in Korea rather than interact with regulators directly. All foreign suppliers must apply for either a manufacturing or importer business license in order to market medical devices

 

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Updates: Pakistan, Egypt and Malaysia  

 

Pakistan

Pakistan

 

In 2012, President Asif Ali Zardari issued a much awaited ordinance to establish a centralized regulation body of the pharmaceutical industry called the Drug Regulatory Agency Ordinance (DRAO), an agency responsible for controlling the pricing of drugs, quality assurance, import/export and issuing licenses to drug manufacturers, among other details.  This ordinance was later signed into law.

 

While the premise of this agency makes sense, there is debate as to whether the DRAO can undertake this responsibility, given its insufficient staffing. "There are currently about 400 pharmaceutical units and about 70,000 drugs registered in the country.  There is a huge shortage of staff available to keep a check on all these drugs.  The staff in DRAO would not be enough to look after all of these.... there are only 478 drug inspectors across the country, which is not enough. The drug inspector lacks staff with whom he can conduct raids. He goes alone without security or any protection," a senior official working closely with the Drug Registration Board (DRB) who wished to remain anonymous.

 

CEO of DRAO and Joint Secretary of the Ministry Arshad Farooq said that the body has been facing the challenges of acquiring land for the construction of permanent offices, increasing the number of drug inspectors, enhancing their capacity and skills, and establishing new drug testing laboratories and upgrading existing laboratories.  

 

Farooq told the National Assembly Standing Committee on National Regulations and Services that the Ministry was allocated seed money of Rupees (Rs) 1 billion and that pharmaceutical companies have made financial contributions to the Central Research Fund as part of their social responsibility. Rs 800 million were allocated to the Ministry for this purpose is still lying idle in government coffers.

 

In addition, about 14,000 applications for the registration of medicines have been piled up in the Ministry. A mechanism is being formulated to clear the backlog, which increased due to the transference of authority from the provinces to the Health Ministry. It was also pointed out that major issues exist in the sale of counterfeit drugs and price differentials for the same medicines manufactured by different pharmaceutical companies. The Ministry will have to formulate a mechanism to rationalize the difference in the prices and raid the factories manufacturing counterfeit drugs.

 

Egypt Egypt

 

The Egyptian Drug Authority (EDA), the pharmaceutical regulatory body of the Ministry of Health has recently released "The Egyptian Guideline for Medical Device Vigilance System," guidelines that took effect Jan. 1st 2013.  It details the purpose of the Vigilance System and the responsibilities for the agency's Medical Device Safety Department, device users, and manufacturers.

 

The Central Administration for Pharmaceutical Affairs (CAPA) announced (1/20/2013) the release of the 1st first draft guidelines for registration of biosimilars in Egypt.  The agency recognizes that biologics generally exhibit high molecular complexity, and may be quite sensitive to changes in manufacturing processes. Their goal is the assurance of the quality, safety, and efficacy of biosimilar products and to facilitate the registration of biosimilar products in Egypt through an abbreviated pathway.

 

Malaysia  Malaysia

 

The Malaysian Investment Development Authority (MIDA) is working to change the investment trend in the medical devices sector, with the focus on adding value, given the growing regional demand for medical products, said Jaswant Singh, director of the life science industry division. 

 

"Under the NKEA (healthcare services), the medical devices sector is one of the priority sectors identified for promotion and further development," he mentioned at a media briefing recently.

 

According to the Health Ministry, Malaysia's medical devices industry is poised for a five-fold increase in revenues by 2020. In 2011, it was valued at about RM3.5 billion Malaysian ringgit (US$1.13 billion) and is expected to reach RM5.3 billion (US$1.71 billion) by 2015. By 2020, it is expected to contribute RM11.4 billion (US$3.67 billion) to the country's revenue and create 86,000 jobs.

 

This growth is attributed to the aging population, increased access to healthcare, and particularly in the Asia Pacific region, changes in lifestyles, and a trend towards health tourism.  

    

Due to these reasons, all medical device manufacturers in Malaysia are required to register their products effective July 1, 2013 under a special Medical Device authority, as part of the regulations in the Medical Device Authority Act 2012.  

 

In addition to the registration, the medical device authorities would monitor the quality of the devices to boost investor confidence and protect product patents. "The ministry is also working on assisting the local medical devices companies to become more competitive through financial incentives, exemption of import duty and providing more sophisticated laboratories," said Health Minister Datuk Seri Liow Tiong Lai.

 

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Closing Thoughts

 

While emerging markets are attractive for growth, the regulatory barriers and the establishment of processes can make it less attractive, particularly China. Investing in emerging markets is definitely a long-term investment, with pay offs in the long run. The good news is that as these emerging markets transition to developing markets, the regulatory systems will become more universal, as we are starting to witness above.

 

These new regulations will certainly help companies to navigate the regulatory process more easily and weed out foreign device companies that do not comply with the countries' regulatory standards. This helps large and small foreign pharma/biotech and medical device companies, but they face increased competition from local pharma and device companies in the respective countries as they develop innovative products that meet western quality standards.

 

But until regulatory processes are standardized for all countries, it is best to hire people who have intimate knowledge of the regulatory process, business customs and have local people in the respective countries you want to sell your drug or device.

 

In addition, while the majority of companies are focusing on the BRICK countries, there are opportunities beyond the BRICK as discussed above. It's a double edge sword. Being an early entry to a new country has its growing pains, but once you are in that country, you have an advantage over competitors.

 

Egypt is attractive, because it has adopted regulations patterned after the EU regulations. Malaysia, with an anticipated five fold increase for medical devices and government incentives, is another attractive market for medical device companies. Pakistan is in its growing pain phase but is headed in the right direction.  Research is the key to determining which developing country is best suited for your company.

 

Email me to determine which countries may be a great market opportunity for your company. 

 

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New Technology - Aortic Valve Replacement That Doesn't Require Major Surgery

 

PinnacleHealth System is participating in a clinical trial to test an artificial heart valve that doesn't require major surgery, called "CoreValve" developed by Medtronic. About 100,000 people a year are diagnosed for aortic valve replacement in the United States.

 

Corevalue
"CoreValve," not approved in the US.
Source: Medtronic  

If successful, this will be a major advancement in treating aortic stenosis. The current standard for aortic valve replacement involves open heart surgery and a long hospital stay and recuperation period. However, one-third of aortic stenosis patients don't quality for surgery because they are too frail. Without a new valve, such patients are likely to die within two years.

 

The new aortic valve being tested at PinnacleHealth doesn't require open heart surgery and the valve can be compressed to fit inside a catheter. The catheter is inserted into an artery near the groin or shoulder and threaded to the heart, where the valve expands and takes over for the faulty one. The old valve doesn't need to be removed. This minimal invasive surgery allows for faster recovery, and may be the preferable option for many people needing aortic valve replacement if successful.

 

To read the full article, click here. 

 

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Twenty-five Medical Device and Thirteen Pharma/Biotech Funding Deals

 

To determine whether funding is picking up, I will be focusing on all types of funding that are $1 million or greater in seed investments and series A or B (or the valley of death) that are pre-IPO. Even though VCs are investing, they continue to invest in their existing portfolio companies and less in start-ups. Incubators, state funding, and business competitions are great for initial seed money but not enough to keep the company going long-term.  These are worldwide funding deals. 

 

Partnerships and licensing deals with upfront payments and milestones will not be included.

 

Medical device funding includes IT companies because they are the current focus of investors for faster return on investments.

 

This month there were five (5) software/IT companies that got funding.  For more information, click on more below.

 

Funding Device
Funding deals are in chronological order by date.
 

$0 = No financial terms disclosed. For more information, read more ....

 

 

Funding deals are in chronological order by date.

$0 = No financial terms disclosed. For more information, read more...     

 

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Twenty-seven Mergers & Acquisitions

 

Mergers & Acquisitions continue to be made for both device/diagnostic/IT (19) and pharma/biotech (8). 

 

Illumina, a genetic instrument maker made two acquisitions this month:  1) Verinata Health, a maker of prenatal tests and 2) Molecule, a gene sequencing company.

 

Samsung acquired Neurologia in its strategy in becoming a leading medical device imaging player by 2020.

 

Stryker acquired Trauson Holdings, China's largest trauma device manufacturer to expand its reach into this market. 

 

No. 27 M&A
Acquisitions are in chronological order by date with Medical Device/Diagnostics followed by Pharma/Biotech.

$0 = No financial terms disclosed. For more information, read more ....

 

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