"The US has more advanced, highly trained manpower, particularly in early drug exploration focusing on biology and medical research. However, when talking about chemistry synthesis, the labor force in China provides an advantage because at this technical level there is not much difference in terms of skill but China offers a cost benefit."
Can you briefly introduce Sundia and highlight the opportunities you saw in China that led to its creation?
People such as myself that were educated abroad and have gathered experience running western pharmaceutical companies in the US were able to bring this experience to China to help develop strong business operations. This model has been very successful and Sundia, as an example, has grown to employ 800 people and boasts more than 200 clients worldwide, including most of the major players in the big pharmaceutical sector. The drug discovery process requires a combination of many scientific disciplines from biology to chemistry that must combine with medical research to understand disease and mechanisms to cure that problem. We contribute to the pre-clinical area and we supply APIs to the clinical trial companies.
What advantages does a CRO offer that have led to overall growth in the sector?
In 2004, most big pharmaceutical companies would do their own R&D. However, today very few pharmaceutical companies house large research teams due to a shift towards utilizing CROs, and there are several reasons this trend will persist. The cost of drug research has skyrocketed and these companies need to find resources that are more cost-effective. CROs are more efficient, especially compared to small and medium sized pharmaceutical companies, which may be prohibited by large investments needed in expensive equipment or technology platforms that may only be used for one stage of the research process. Operational flexibility is also an advantage that CROs can offer. When molecules become late stage, smaller companies may need to lay off chemists or technicians, but a CRO like Sundia offers this operational flexibility.
What do you see as the key advantages of conducting drug discovery in China over destinations like India or the US?
Firstly, the protectionist regulatory policies regarding marketing a drug in China compels the manufacturing of the drug to take place in China because the cost of importation is extremely high. Secondly, supportive infrastructure and strong supply chain development aid China in gaining the advantage over India. Our effective import-export system experiences less customs delay and boasts relatively quicker turnaround time. The US has more advanced, highly trained manpower, particularly in early drug exploration focusing on biology and medical research. However, when talking about chemistry synthesis, the labor force in China provides an advantage because at this technical level there is not much difference in terms of skill but China offers a cost benefit.
Where does Sundia see the most geographic potential to expand its client base?
At the moment, Sundia derives 75% of its business from companies coming from all around the globe, while the rest are domestic clients. Several factors have been driving growth in our domestic customer base as Chinese companies increasingly enter the drug discovery space. These companies are motivated by competition because it is a highly fragmented market of around 6,000 Chinese pharmaceutical companies competing in the field of generic drugs. In late 2015, China launched a new qualification process for generics that requires comparative clinical trials with an original drug to determine whether performance can be matched. These trials cost 12-15 million RMB per product at great risk of failure. Given the severe competition for generic drugs, this proved lethal for some companies as these drugs come with slim margins leading to the mass exit of 900 companies by late 2016 and the trend is continuing. In combination with resources and incentives provided by central and local government, this has driven Chinese pharmaceuticals companies to search for new drugs, which provide higher margins and patent protection, however they largely do not have experience in drug discovery which is where CROs like Sundia can play an important role.
How has the government’s push to evolve the regulatory environment impacted Sundia?
This is a challenging problem for Sundia. We would like to invest in a GMP factory but we could not find a place that would welcome us. Generic drug producing factories with lower margins that do not follow protocol and operate at lower standards have given rise to this untrue notion that all pharmaceutical manufacturing facilities pollute the environment. Companies like Sundia that are producing new drugs at higher margins have no issues complying to the standards set by the government. Waste disposal is another issue and we have seen the price skyrocket, which is not good for our business. We understand that China needs to protect its environment, but dishonest people try to use this situation to their own advantage. Disposal companies are licensed and regulated by the local government, so only a limited number of companies offer services like solvent disposal or burning so they can charge a very high price.
Looking ahead, what are your outlook for the CRO sector in China and your vision for Sundia?
We are confident that Sundia's team offers the known-how and technology to support our customer’s needs. China has good infrastructure to support our growing business. Many CROs have begun their own drug discovery projects through various collaborations such as profit sharing or joint ventures. Sundia will not engage in these activities, instead remaining committed to the principle of being a pure service provider. We believe this business model will allow us to grow and better serve our clients by avoiding any conflicts of interest.