Active pharmaceutical ingredients and generic drugs become two major monitoring priorities.

　　It is understood that China currently has nearly 5,000 pharmaceutical companies, with generic drug manufacturers accounting for more than 90 percent of the total. This year, the government has intensified its efforts to reform and regulate the generic drug industry. Now, the draft "征求意见稿" (Draft for Soliciting Opinions) on generic drugs has been released, mandating that future generic versions must match the original brand-name drugs in both quality and therapeutic efficacy. Industry insiders predict that in the coming years, exports of generic drugs could account for over 30 percent of revenue generated by formulation-exporting companies. If companies can successfully maintain high-quality standards, this policy will undoubtedly benefit them. However, should any issues arise with drug quality—potentially leading to a "seizure" by the U.S. Food and Drug Administration—the impact on pharmaceutical firms could be severely damaging.

　　Pharmaceutical companies frequently appear on warning blacklists.

　　Recently, the U.S. Food and Drug Administration added Xinxiang Pharmaceutical Co., Ltd. and Xinxiang Tuoxin Biochemical Co., Ltd. to its Import Alert list. As a result, any drugs or active pharmaceutical ingredients—such as adenosine, choline, uridine, and other pharmaceutical intermediates—produced by these companies will face "detention without physical examination" by U.S. Customs when exported to the United States. This means that products from these two pharmaceutical firms are now prohibited from entering the U.S. market. It is reported that both companies were placed on the import alert due to non-compliance issues identified during on-site GMP (Good Manufacturing Practice) inspections conducted by the FDA.

　　A reporter from the Beijing Business Today noticed on the official website of Xinxiang Pharmaceutical Co., Ltd. that the company formed the Tuoxin Group in early 2005, partnering with Xinxiang Tuoxin Biochemical Technology Co., Ltd. Several of its products have already met the standards set by the U.S. Pharmacopeia and the European Pharmacopeia, and these products are now exported to over 20 countries and regions, including the Americas, Europe, and Southeast Asia, helping the company establish a growing international marketing network. When the Beijing Business Today reporter attempted to reach out to a relevant executive at the company for details about the export ban on their pharmaceuticals, the phone remained unanswered throughout the call.

　　　In fact, Xinxiang Pharmaceutical Co., Ltd.'s inclusion on the U.S. FDA's "blacklist" is not an isolated incident. Last March, during an inspection of HaiZheng Pharmaceutical’s Zhejiang factory—China’s well-known manufacturer of both active pharmaceutical ingredients and finished drug products—the FDA found that the production of APIs significantly deviated from CGMP standards (the international GMP guidelines). Specifically, issues were identified, such as untimely recording of laboratory data. Meanwhile, HaiZheng Pharmaceutical had received numerous customer complaints between 2012 and 2014 regarding insufficient potency and excessive impurities in its products; however, all original data related to these complaints had already been erased. Based on the inspection findings, the FDA added 13 of HaiZheng Pharmaceutical’s APIs to its Import Alert list. Notably, these 13 API varieties generated actual sales revenue of RMB 177 million in the U.S. market from January to August 2015, while the company had initially projected sales of RMB 62 million for September to December 2015. Additionally, in the first half of last year, HaiZheng Pharmaceutical’s net profit plummeted by 78.33% compared to the same period the previous year.

　　Two Major Monitoring Points

　　Since 2009, 40 Chinese pharmaceutical companies, including well-known firms such as Jiuzhou Pharmaceutical and China Resources Sanjiu (22.70, 0.00, 0.00%), have been placed on the U.S. FDA’s Import Alert list. Notably, these companies primarily export active pharmaceutical ingredients (APIs) and generic drugs to the U.S. market—two product categories that have increasingly become focal points of scrutiny for the FDA in recent years.

　　Since China has now become the second-largest importer of active pharmaceutical ingredients (APIs) to the U.S., trailing only India, more and more Chinese pharmaceutical companies are applying to export APIs to the U.S. However, having extensive experience in long-term exports doesn’t necessarily translate into a more relaxed regulatory environment for these companies. In fact, since last year, the U.S. Food and Drug Administration (FDA) has significantly ramped up both the number and frequency of inspections at Chinese GMP-certified API production facilities, leading to increasingly stringent enforcement actions. For instance, in January of this year, the FDA inspection at HaiXiang Pharmaceutical’s Waisha plant revealed concerns over insufficient laboratory data integrity, resulting in certain products being temporarily barred from entering the U.S. market.

　　Industry insiders say that the "insufficient laboratory data integrity" mentioned by the U.S. FDA is also a widespread issue shared by the vast majority of Chinese pharmaceutical companies that have been banned. According to last year's GMP on-site inspections conducted by the U.S. and EU in Chinese pharmaceutical firms, the primary concerns revolved around data-related problems—such as incomplete or inaccurate data, falsified analysis reports, tampering with records, repeated copying of records, and inconsistencies between dates and signatures.

　　Meanwhile, generic drugs remain a major focus of overseas regulatory scrutiny. Last January, domestic pharmaceutical companies such as Xiantai Pharmaceutical, part of the North China Pharmaceutical Group (6.940, +0.00%, +0.00%), and Zhejiang Procare Kangyu, under Propharm (6.73, +0.00%, +0.00%), failed to pass EU GMP inspections due to issues like falsified documentation. As a result, their products lost the opportunity to enter the EU market.

　　Regulation will also become stricter.

　　"With the introduction of the generic drug consistency policy, regulatory oversight from U.S. and European drug agencies on Chinese companies is set to become even stricter," Shi Licheng, head of Beijing Dingchen Pharmaceutical Consulting, told the Beijing Business Today. He added that currently, exported drugs account for a relatively small share—typically below 10%—of many companies' business portfolios. However, once the generic drug consistency evaluation policy is fully implemented, the proportion of exports in these companies' operations is expected to rise significantly. If, at that critical juncture, companies face U.S. or EU sanctions due to their own internal issues, their financial performance could suffer considerably.

　　It is understood that China currently has nearly 5,000 pharmaceutical companies, with generic drug manufacturers accounting for more than 90 percent of the total. This year, the government has stepped up its efforts to reform and regulate the generic drug industry. Now, the draft "征求意见稿" (Draft for Soliciting Opinions) on generic drugs has been released, mandating that future generic versions must match the original brand-name drugs in both quality and therapeutic efficacy. Industry insiders predict that in the coming years, exports of generic drugs could account for over 30 percent of revenue generated by formulation-exporting companies. If companies can successfully ensure high-quality standards, this policy will undoubtedly benefit them. However, should any issues arise with drug quality—potentially leading to a "seizure" by the U.S. Food and Drug Administration—the impact on pharmaceutical firms could be severely damaging.

　　Shi Lichen pointed out that the U.S. FDA has shifted its oversight of Chinese active pharmaceutical ingredients (APIs) and finished dosage forms—from random inspections to routine checks. Additionally, inspections of Chinese companies' manufacturing processes are being intensified. As the FDA tightens its regulatory scrutiny, other countries are likely to follow suit, ramping up their own inspections of Chinese APIs and formulations. The combined effect of these three factors means that pharmaceutical companies already "going global" will face even stricter scrutiny, while those still staying put will find it increasingly challenging to expand overseas—particularly in terms of making their production lines eligible for FDA approval. To navigate the international market successfully, Chinese pharmaceutical firms must not only rigorously adhere to every GMP requirement but also step up efforts to develop innovative, cutting-edge drugs that currently remain untapped opportunities in the global arena. Meanwhile, establishing manufacturing facilities, pursuing mergers and acquisitions, and building independent R&D centers and marketing networks in the U.S. could prove to be smart strategic moves for long-term success.