SFDA'S TREATMENT OF BAXTER IN CHINA

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E.O. 12958: N/A
TAGS: ECON EAGR ETRD HHS PREL CH
SUBJECT: SFDA'S TREATMENT OF BAXTER IN CHINA

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1. (SBU) SUMMARY: Representatives of Baxter
Healthcare (protect) visited the U.S. Embassy
in Beijing to present their concerns about the
deterioration of relations with China's State
Food and Drug Administration (SFDA) amid
concerns that the agency may try to shift
responsibility for the heparin problem away
from China, to the detriment of Baxter. END
SUMMARY

UNANNOUNCED INSPECTIONS
--------------

2. (SBU) On May 27, three representatives of
Baxter Healthcare, including Stanley Lau
(protect),the General Manager for Baxter in
China, Marie Kissel (protect),the Regional
Director for Government Affairs, and Charles
Chen (protect),an Assistant General Counsel,
visited the U.S. Embassy in Beijing to brief
HHS Health Attache and Econoff. The company
presented concerns about the deterioration of
relations with China's State Food and Drug
Administration (SFDA) and the possibility that
the SFDA may be looking to retaliate for
perceived uncooperative behavior when SFDA
staff visited the company's Cherry Hill
facility in April. COMMENT: This SFDA visit, to
the facility where Baxter's recalled heparin
sodium U.S.P. was manufactured, followed the
April 17-18 International Regulators Meeting on
Heparin in Washington DC sponsored by the U.S.
Food and Drug Administration (FDA) which
gathered heparin experts and representatives
from 12 different drug-regulating authorities
to discuss the ongoing heparin investigation
and its methodology. END COMMENT.


3. (SBU) General Manager Stanley Lau stated
that Baxter's plant in Guangzhou has been
investigated twice in recent weeks by two
separate SFDA ''flying-squad'' teams. Unlike
previous visits, when the local FDA had been
notified and informed of a pending inspection,
the SFDA inspectors arrived unannounced and
without informing the local FDA about the
inspection. The manner and tone of the
investigators was aggressive and the inspectors
seemed not to listen to any of the explanations
offered by the facility managers. The first
investigation yielded a laundry list of 20
problems at the facility and the second cited
five problems (3 as being critical and 2 listed
as major).

SFDA APPEARS TO CUT OFF COMMUNICATION
--------------

4. (SBU) Stanley Lau stated that relations
with SFDA were positive until a small SFDA
group traveled to the Baxter plant in Cherry
Hill, New Jersey in April 2008. In traveling
to the U.S. to attend the International
Regulators Meeting on Heparin, the SFDA team
had hoped to gain some insight into downstream
segments of the heparin market. The SFDA
requested the Cherry Hill plant visit in an
informal late night call placed to Baxter, and
the FDA learned a few days in advance of the
proposed visit when Baxter called to discuss it
with them. SFDA officials attending the FDA-
sponsored International Regulators meeting on
heparin were informed by the FDA in advance
that they would not have the legal right to
demand drug production samples (as the product
was neither sold in China nor regulated by
SFDA). During the SFDA visit, Baxter expressed
its preference to provide samples through
official USG channels. When SFDA was not able
to obtain heparin samples on site, relations
appeared to sour. NOTE: During the recent

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February FDA inspection at Baxter's affiliated
plant, Changzhou SPL, where SFDA was an
observer, FDA investigators asked and received
samples of specifically requested production
lots held at the plant. The SFDA similarly
requested and later received samples from these
same lots. END NOTE. SFDA officials told
Baxter privately at the Cherry Hill facility
that they could not "get to" Baxter through the
U.S. but they have total authority in China.


5. (SBU) Baxter employees said that through
some miscommunication, the SFDA team also came
away from the meeting at Cherry Hill with the
mistaken impression that records related to the
incident had been destroyed (as reported by the
Chinese side). Baxter tried to provide related
documents to SFDA and was told to use official
channels in all future contact with the
government agency.


6. (SBU) Since then, on April 22 and April 29,
the company tried to follow up with SFDA to
provide the requested additional paperwork
(redacted medical records of those patients
suffering from the adverse allergic drug-
reactions). These documents were sent by
Baxter to SFDA via courier, and the first
shipment seemed to have been received; the
second shipment was refused and returned.
Baxter also indicated that it asked SFDA for a
specific address to ship the requested samples,
but SFDA has not answered Baxter on where the
samples should be sent. To date, no production
samples have been shared by Baxter due to this
lack of a specific recipient and address
provided by SFDA. In the subject meeting,
Baxter indicated its preference to provide the
sample to the FDA, which might retain a portion
as a control sample and then have FDA ship it
directly to SFDA.


7. (SBU) Baxter believes SFDA working level
authorities are taking out their frustrations
over miscommunication and the visit to the
Cherry Hill plant. Those officials who visited
the Cherry Hill facility are affiliated with
SFDA's National Institute for the Control of
Pharmaceutical and Biological Products (NICPBP)
and were responsible for performing the tests
on heparin samples to determine whether there
was, or was not contaminant present in the
samples tested in China.


8. (SBU) Baxter requested in the subject
meeting whether the Health and Human Services
Attache could personally deliver requested
production samples to the appropriate SFDA
office. The HHS Attache agreed to check with
FDA about this, and expressed concern over the
chain of custody in doing so, but promised to
get back to Baxter. Baxter hopes to maintain
constructive ties with SFDA authorities on both
sides and to get through the current impasse.


DRUG SAFETY LOOPHOLES STILL APPARENT
--------------

9. (SBU) Under current regulations,
pharmaceutical companies in China that
manufacture only for the export market are not
subject to the authorities and regulations of
SFDA, since the product would not be used in
the domestic China market. Moreover, certain
pharmaceutical ingredients that are declared or
classified as chemicals are not subject to SFDA
regulations and authorities either, even if
their only real applications are in
pharmaceuticals. This issue, regulation of
active pharmaceutical ingredients (API),and
the apparent black-hole this represents in the
normally tightly-controlled regulatory
environment for pharmaceuticals, was discussed
during the negotiations that occurred between

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SFDA and HHS/FDA last fall leading up to the
signing of the Memorandum of Agreement for Drug
and Medical Product Safety at December 2007's
SED. Vice Premier Wu Yi in her closing remarks
at the December 2007 JCCT even noted this lack
of control and regulation of APIs as a concern
that needed to be addressed by China and
indicating that the State Council would likely
begin to address this in the coming year.

A SHIELDING STRATEGY AT SFDA?
--------------

10. (SBU) COMMENT: The heparin incident and
the aforementioned loopholes have created a
liability and public opinion problem for which
the SFDA is reluctant to take responsibility.
In its press statements, the SFDA has
continually indicated that the heparin-issue is
an American problem, as the plant in question
(Changzhou SPL) is an American joint-venture
manufacturing its heparin sodium U.S.P. solely
for export to its parent American firm, for use
by Baxter. SFDA has reiterated that the China-
based plant was neither under SFDA
responsibility nor regulation. The aftermath of
the 2007 food and product scare, as well as the
internal shakeup of SFDA in 2006-7 and the
execution of the SFDA Commissioner last year
have weakened the SFDA to the point that it has
little political capital to expend. Further
deterioration of the SFDA's credibility would
have a major impact for consumer confidence in
China as a safe source of pharmaceuticals. It
appears possible that concerned officials may
try to shift or spread blame in order to shield
the agency from further criticism and in order
to protect China's image among consumers. A
recent decision to bring SFDA back under the
Ministry of Health (MOH) is part of a
government-wide plan to streamline and
coordinate authorities while intensifying
regulation of drug products. This change, an
outcome of the March 2007 National Party
Congress (NPC),will likely enhance SFDA's
ability to enforce drug regulations and to
develop a stronger regulatory framework with
the MOH. END COMMENT.

PICCUTA