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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #1049/01 2602341
ZNR UUUUU ZZH
R 172341Z SEP 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6469
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAUSA/DEPT OF HHS WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 001049 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS TO USTR 
STATE FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: ETRD ECON PGOV CH
SUBJECT: South China Drug Makers Differ on Impact of Product Safety 
Issues 
 
¶1. (SBU) SUMMARY: Several pharmaceutical companies in South China 
appear to have taken steps to improve their quality assurance (QA) 
procedures and put them more in line with international standards. 
Product safety and integrity problems interestingly are reinforcing 
for Chinese companies the need to address IPR violations so as to 
protect brands and clamp down on counterfeits and fakes.  Drug 
Industry executives have also expressed interest in obtaining U.S. 
Food and Drug Agency approval for their products, but they claim to 
be confused about the approval process - not just in the United 
States, but in China as well. END SUMMARY. 
 
Snapshots of Three PRC Drug Companies 
------------------------------------- 
 
¶2. (SBU) Baiyunshan Pharmaceutical Company:  According to Managing 
Director Qi Zhaoji, Baiyunshan mainly produces antibiotics and 
over-the-counter medications.  It also has a Hong Kong-based 
subsidiary that specializes in traditional Chinese medicines (TCM). 
Founded in 1992 and listed on the Shenzhen Stock Exchange in 1993, 
Baiyunshan ranks as China's 25th largest pharmaceuticals company by 
sales volume.  In August 2007, one of Baiyunshan's 11 subsidiary 
companies formed a joint-venture with U.S. Baxter, an American 
medical device company. 
 
¶3. (SBU) Hua Hong Pharmaceutical: Board of Directors Secretary Liang 
Song told us that his firm - founded in 1971 and restructured in the 
late 1990s - has been transformed from a failing state-owned 
enterprise into a multi-million dollar company.  Today it is a 
household name in China.  Hua Hong's TCM products are mostly aimed 
at women.  The company claims that its most popular product - the 
Hua Hong Tablet - is the first oral TCM designed to treat 
gynecological inflammation.  Hua Hong's market is primarily 
domestic, with some exports going to South East and East Asian 
countries. 
 
¶4. (SBU) Ranbaxy (Guangzhou) Ltd.:  This subsidiary of India's 
largest pharmaceutical manufacturer produces active pharmaceutical 
ingredients (APIs) which are primarily exported to U.S.-based drug 
makers and used in the manufacture of finished drug products such as 
antibiotics and cardiovascular medications.  The United States 
accounted for 80 percent of its sales. 
 
Improving Quality Assurance Procedures or... 
-------------------------------------------- 
 
¶5. (U) Two of the pharmaceutical companies visited by Congenoffs 
reported that they had strengthened their quality assurance systems 
in response to recent media reports about product safety problems. 
Baiyunshan implemented a new quality assurance regime in 2006 in 
response to several high profile drug scandals in Anhui province 
that led to deaths around China.  The firm provided detailed 
information on its "5 S Quality Assurance System," which mandates 
quality control reviews at each phase of production and by each 
level of the company.  It has also established an independent QA 
department and an extensive customer service response system, 
including a hotline to report potential quality issues. 
 
¶6. (SBU) Hua Hong's Liang said that the recent spate of consumer 
safety scandals had prompted the company to reexamine its QA 
processes.  Liang's candid statements were "clarified" by the local 
Foreign Affairs Office official, who also attended the meeting with 
Congenoff and who averred that Hua Hong had not changed or improved 
its QA regime as a result of media reports.  Rather, he emphasized, 
Chinese enterprises and government officials had "continuously 
stressed the necessity of adherence to product safety regulations 
and will continue to do so in the future." 
 
Satisfied with Status Quo 
------------------------- 
 
¶7. (SBU) The Ranbaxy executive, in contrast, told us that recent 
news had not had an impact on the company's already strict safety 
and control procedures.  He explained that Ranbaxy Guangzhou had 
received Good Manufacturing Practice (GMP) clearance, a standard 
introduced by the World Health Organization (WHO) in 1968, ensuring 
that products are manufactured and tested in compliance with WHO 
prescribed quality standards.  The Ranbaxy executive claimed the GMP 
audit and certification process is accepted by 90 percent of 
countries around the world.  In addition, he said 70-80 percent of 
Ranbaxy Guangzhou's operating costs go toward monitoring and 
 
GUANGZHOU 00001049  002 OF 002 
 
 
maintenance of proper air pressure, humidity controls, and air 
quality.  The executive also said that regulations enforced by 
China's State Food and Drug Administration (SFDA) regulations are 
quite strict.  His facility is regulated by the Guangdong Province 
as well as the Guangzhou FDA; they conduct unannounced annual site 
over several days. 
 
 
Quality Assurance Problems Still Persist for Some 
--------------------------------------------- ---- 
 
¶8. (SBU) Baiyunshan's Qi Zhaoji told Congenoff that despite its 
strengthened QA regime, its U.S. joint-venture partner, Baxter, had 
asked the Guangzhou plant to stop production until it could conclude 
a thorough investigation to ensure that QA procedures met global 
standards.  Hua Hong showed Congenoff a flashy media presentation, 
which claimed Hua Hong is "refining Chinese medicine in a western 
way" by taking old folk remedies and mass producing them with the 
help of modern science.  However, the factory tour was less 
convincing.  At one point during the tour, the floor manager firmly 
led Congenoff away from a room where a machine was spitting brown 
medicine tablets into a dirty plastic bucket and onto the floor. 
Conditions in the room clearly did not reflect the modern science 
advertised in the media presentation. 
 
Renewed Focus on IPR 
-------------------- 
 
¶9. (U) Baiyunshan managers stressed to us that combating counterfeit 
drugs is one of their top priorities, especially in light of 
concerns about product safety.  To that end, Baiyunshan has a 
special office devoted to IPR protection.   This office works with 
the pharmaceutical professional association, public security bureaus 
and other law enforcement agencies.  Customers can also use the 
customer service hotlines to report counterfeit products. 
 
¶10. (U) Hua Hong's manager said that concern about counterfeit 
products had been heightened due to the risk of unsafe copies.  He 
said that in July 2007, Chinese drug inspectors from SFDA found four 
batches of Hua Hong's most popular medicine - the Hua Hong tablet - 
that did not meet nationally mandated safety standards.  Further 
investigation revealed that the medicines did not originate from the 
Hua Hong plant but were instead very convincing fakes. 
 
¶11. (U) Ranbaxy is known in the U.S. for the high-profile patent law 
suit filed against it by Pfizer Pharmaceuticals. The ongoing law 
suit resulted in Pfizer's Lipitor drug patent being reduced by 15 
months.  The Ranbaxy executive informed us that the firm spends 
about 10% of corporate sales on research and development and employs 
1,200 scientists who work on new drug applications.  However, he 
noted that there had not yet been any discoveries of Chinese 
counterfeit versions of Ranbaxy products. 
 
Seeking Approval in the U.S. and China 
-------------------------------------- 
 
¶12. (U) Baiyunshan and Hua Hong executives both told us that an 
important goal for them is to obtain U.S. Food and Drug 
Administration (FDA) approval for their drugs. Although one motive 
for FDA approval is access to the U.S. market, managers also seem 
believe that an FDA "seal of approval" would bring international 
legitimacy to their products that could boost sales in China and 
elsewhere.  However, both firms complained of confusion over the FDA 
approval process.  Pharmaceutical managers said they would welcome 
more communication with the U.S. FDA as well as with U.S. 
pharmaceutical associations so as to better understand the path to 
FDA approval. 
 
¶13. (SBU) The Ranbaxy executive, on the other hand, complained to us 
about the drug approval process in China, which he said takes too 
long.  He said the process takes one to two years and blamed delays 
on the high volume of applications.  He pointed out that China has 
4,000 GMP approved pharmaceutical manufacturers each submitting 
multiple approval requests per year.  Thailand, in comparison, has 
only 170. 
 
GOLDBERG