China’s drug test backlog creates private equity niche

TPG is expanding a Taiwanese clinical trial firm to help cut China's long queue for new drugs. The deal is another step in the private equity firm’s plan to create a pan-Asian CRO.

US private equity firm TPG has bought a majority stake in Taiwanese clinical trials provider, OPC Holding, which it plans to expand into China, the world’s second largest pharmaceutical market.

The acquisition, announced on Monday, is another step in TPG’s plan to create a pan-Asian clinical drug trials firm, also known in the industry as a contract research organisation (CRO).

The other leg of the nascent regional CRO is Sydney-based Novotech, which TPG said it bought in August. While Novotech caters to US and European biotech firms conducting research in Asia, OPC will target Chinese firms seeking regulatory approval for their drugs, whether at home or abroad.

China has fallen years behind other countries in approving new drugs because it has lacked the staff needed to sift through mountains of clinical test data, some of it fraudulent. The result has been a slow and opaque regulatory review process at a time when China’s population is ageing and needs greater medical attention

An overhaul of the country's existing drugs regime was initiated in 2015 by the China State Council to crack down on sub-standard medical products, cut the backlog, and boost Chinese drug exports.

So the situation is better than it was. In 2015 just 70 or so drug reviewers handled over 8,000 new drug applications. By the end of 2016, that number had grown to 600 reviewers, according to PPD, another CRO.

But the scale of pending work remains onerous. In other respects, it's also growing, which is where TPG hopes to come in.

As part of a broader review of China's healthcare system, a revamped China Food and Drug Administration (CFDA) is also telling drug companies to complete bioequivalence trials for all marketed generic drugs or risk losing their licences. Generic drugs dominate in China's pharma market, with an 85% share of total drug sales.

All the drugs that the Beijing-based CFDA has labelled “essential” must complete bioequivalence trials by 2018, while those that are not deemed essential must finish the trials within three years after the first one has passed.

That means a large proportion of generic drug makers will have to redo their bioequivalence trials within a tight timeframe.  So clinical trial sites and qualified CROs in China are swamped.

Meeting demand

At present the CFDA is meeting only one third of demand from Chinese pharmaceutical companies, according to consultancy firm Frost & Sullivan. So at the current pace, the queue is likely to last until 2023.

Forth Worth, Texas-based TPG’s idea is for OPC to use the experience it has gleaned in Taiwan to tackle some of the excess demand from Chinese pharmaceutical companies. 

In February, OPC set up a joint venture with Xuzhou Medical University, which has a bioequivalence and Phase I drug trials unit. 

Having built a presence in mainland China, Taiwan, South Korea, and Japan and worked with several international regulatory bodies since its founding in 1997, TPG also hopes OPC will cater for Chinese drug companies now pursuing overseas trials more aggressively in order to enter international markets.

In addition, sister firm Novotech has operations in Malaysia, the Philippines, South Korea, Taiwan, and Thailand. 

As part of the transaction, OPC’s founder and chief executive Jason Chen will become chairman. The lead partner at TPG on the deal was Scott Chen.

UBS provided financial advice and Baker McKenzie served as legal counsel to OPC; Cleary Gottlieb Steen & Hamilton and LCS & Partners in Taiwan served as the legal advisors to TPG.

TPG is in the midst of raising about $4.5 billion for its Asia-focused fund, TPG Asia VII.

Revamped CDFA approval process

Source: PPD
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