The U.S. to Release New Standards for Heparin Products; Pharmaceutical Companies Face Further Cost Pressures

Chinese heparin API suppliers, which have generally seen declining profits, will face new cost pressures. According to information from the United States Pharmacopeia (USP), following the “Baxter incident,” the U.S. Food and Drug Administration (FDA) is about to issue and implement its third revised standard for heparin products. The new standard imposes stricter requirements on impurity levels and restrictions on the sources of heparin raw materials. According to Cao Hongxin, Senior Account Manager for the China region at USP, the FDA’s third-phase revision of heparin standards is currently underway and will further revise and raise quality standards for several aspects of sodium heparin. Cao Hongxin revealed that the third revision of USP’s heparin standards specifically includes: increasing the sensitivity of the NMR method used to detect OSCS— one of heparin’s major impurities and the root cause of the 2008 “sodium heparin incident”—to 0.1%, compared to the previous requirement of 1.0%; additionally, the newly revised standard calls for enhanced detection methods for proteins and nucleic acids, lowering the detection limit from 1.0% to 0.1%. Reporters learned that the FDA has invited major global suppliers—including China’s five leading heparin companies, such as Changshan Pharmaceutical—to participate in drafting these standards. The standards will primarily rely on the BCA assay—a method for measuring protein content—for calibration, with a linear average likely adopted as the reference value. Cao Hongxin indicated that the third-phase revision is expected to be finalized and released in the second quarter of next year, at which time new standards for sodium heparin molecular weight calibration and adenosine reference standards may also be introduced. The United States is the world’s largest market for heparin APIs, accounting for roughly half of the global market share in 2010. Currently, China supplies 60% of the world’s heparin raw materials. Major Chinese heparin API suppliers, including Hepu Pharmaceutical (002399.SZ), Qianhong Pharmaceutical (002550.SZ), and Changshan Pharmaceutical (300255.SZ), have already become heavily reliant on overseas markets. Consequently, the upcoming revision of U.S. heparin product quality standards will inevitably impact these domestic enterprises. According to data from the website of the State Food and Drug Administration (SFDA), there are currently 24 Chinese companies holding domestic production licenses for heparin APIs; however, only two—Hepu Pharmaceutical and Qianhong Pharmaceutical—have obtained FDA certification. Industry experts point out that China’s current domestic standards for heparin products are already quite close to the new USP standards, and major exporting companies have already been adopting U.S. or EU standards. Therefore, the implementation of the new U.S. USP standards is unlikely to significantly disrupt China’s leading domestic enterprises, though it will lead to a corresponding increase in their production costs. Looking at the trend of sodium heparin—the most important category of heparin APIs—export prices began to decline in the third quarter of last year, and in the first half of this year, the average export price fell to $9,163 per kilogram, a year-on-year decrease of 12.16%. Meanwhile, during the period from 2008 to 2010, the raw material procurement costs for heparin manufacturers more than doubled. According to interim financial reports from listed companies, Hepu Pharmaceutical and Qianhong Pharmaceutical both showed signs of profit decline in the first half of this year. Although the continuous upgrading of industry standards is impacting related companies, in the long run, the market potential for heparin products remains highly promising. Data from the Southern Institute of Pharmaceutical Economics shows that by 2015, the global market size for heparin-based drugs will reach 7.9 billion U.S. dollars. Customs data indicate that in 2010, China’s exports of heparin products rose by 71.69% year-on-year to 1.198 billion U.S. dollars, with a compound growth rate of 130.24% over the past three years. At the same time, heparin export prices have grown rapidly: from 2008 to 2010, the average export prices were $3,473/kg, $6,249/kg, and $10,473/kg, respectively. However, the sustained rise in heparin prices has not been entirely beneficial for domestic enterprises. Our reporter learned that five or six large-scale sodium heparin producers in Europe and India, which had previously ceased production, are now preparing to resume operations. The main reason is that the market price of sodium heparin has reached their cost and profit targets. Moreover, these companies are highly optimistic about the future market prospects for sodium heparin. In response, Ji Shengli, General Manager of Changshan Pharmaceutical, believes that once these companies restart production, given the relatively similar product prices, European and U.S. buyers will typically favor European and Indian suppliers, which will undoubtedly deal a blow to domestic exporters.