South Carolina Business Delivers What China Doctors Order
By Doug Barry
It’s a long way from Russia to South Carolina, but Inna Prikhodko made the journey as a child so she and her family could escape religious repression rampant in the Soviet Union at the time. “My grandfather was a Christian and got sent to Siberia for his beliefs,” she said.
After he was released, he wrote letters to the United Nations. When the Soviet Union collapsed, there was a window to escape, and her family traveled to California under sponsorship of a church. Now an adult with two teenage daughters of her own, she’s the owner of Salerra, a business that exports pharmaceuticals and controlled substances to China. It’s a good, growing business with sales likely to reach about $10 million this year.
Prikhodko spent her childhood in a Communist country with a centrally planned economy. She understands the mindset. How things get done, and how they don’t. She says it has made it easier doing business in China.
Her business partner provided another piece of the puzzle. “He is a pharmacist with degrees from both Chinese and US universities,” she explained. “He saw the problems on the China side—the lack of supply of new breakthrough drugs, the lack of trust between foreign businesses and Chinese customers, the lack of experts and knowledge on how to export drugs into China under the current Chinese customs laws.”
"Certificates can be required from one or more of several government entities, such as the FDA, the US Department of State, and/or the Chinese Embassy in Washington, DC. Some certificates can take months to obtain."
The business model is to find members within China’s health care system willing and able to prescribe and administer novel US drugs to their patients. It helps that her partner went to school with people who are now running hospital pharmacies, and many of them have become customers. Salerra then sources the drugs from US manufacturers and helps the Chinese customers get the necessary prescriptions, permissions, and licenses from official entities in both countries.
She says the US agencies—the Food and Drug Administration (FDA) and the Drug Enforcement Administration (DEA)—have clear regulations on how to export medicine. That’s not the case with Chinese regulators; rulemaking in this sector is a work in progress. “Many of the regulators and customs agencies in China don’t know what to do with our products,” she said.
Exploiting competitive advantage
Her competitive advantage is that the United States has very stringent rules and quality assurance systems in matters of health and safety. Consumers around the world (including China) trust the quality of US-made pharmaceuticals, and they are willing to pay more for them. The demand for US-made pharmaceuticals is surging in China, especially during periods of COVID-19 lockdown.”
Another advantage is that the United States produces innovative drugs for complex diseases. The drugs are very expensive, often costing thousands of dollars per month. China has a growing number of people capable of paying these prices to cure their loved ones. Because the customers are private hospitals or clinics, they are relatively free to spend freely at the request of their patients.
But aren’t there centralized government procurement processes that deliberatively drive down the cost of imported drugs? Yes, she says, but typically these are mass market drugs, not novel treatments that are available for individual use while the treatments are awaiting approval in China for mass market use. The markets are completely different.
“Before COVID-19, we went to healthcare shows in China to promote our services and secure orders. Since the pandemic, we haven’t done that and must depend more on our staff members there.”
Why don’t US manufacturers go directly to buyers in China? Salerra works with smaller American pharmaceutical companies that don’t have the resources or capability to sell directly to the China market. “It’s too expensive and complicated for them. Through us, they get a competitive price for their product, and we deliver the excellent customer service that is our secret sauce.”
Other ingredients in the sauce include providing answers to every request and building relationships. For example, China Customs requires some of the most extensive paperwork for pharmaceutical imports of any country. Some of the official documents are really hard to get. For example, certificates can be required from one or more of several government entities, such as the FDA, the US Department of State, and/or the Chinese Embassy in Washington, DC. Some certificates can take months to obtain.
Another ingredient in the secret sauce is that some buyers want videos of the packing and shipping process for the drugs to ensure quality. Salerra provides that too. “We guide them individually through the maze and win customers’ hearts. We give free samples of GNC fish oil and customers love it. We sent free masks early in COVID-19,” Prikhodco said. She works days, and her partner works nights, providing 24/7 coverage. Customers like that too.
The logistics involved are complex and expensive. Drugs come in special temperature-controlled boxes that are trackable remotely. Salerra provides coolers and data loggers. Logistics partner companies like FedEx, or other freight forwarders, make sure all the US customs paperwork is cleared before the package leaves the door.
Despite all out efforts to speed the shipments, it can take a month from placing the order to its arrival in China. Her products are tariff free. If the shipping takes too long, their customer’s permit to receive the drugs can expire. Each shipment requires its own permit, so on-time delivery is key.
Another problem is that if there is no clear regulatory path on the China side permitting import of a specific drug, she said an official is likely to refuse it entry into the country. The regulators, enforcement agencies, and medical community need to work closer together. “China is way behind in this regard,” she said.
A Catch-22 situation involves the sale of some controlled substances. For example, there is one drug that is not designated as a controlled substance in China, but it is considered as such in the United States. As a result, China will not provide a controlled substance import permit to the US suppliers. But the DEA won’t grant an export permit without an import certificate issued by the importing country. No permit, no shipment. “The different agencies in China don’t communicate well with each other, which causes a lot of problems for doctors, patients, hospitals, and for us who try to make a positive difference.”
She feared an existential moment would be COVID-19. “I thought the pandemic would shut us down,” she recalled. “But China eased up on issuing permits, and we ended up selling more.” But not being able to travel to trade shows in China has eliminated for now a major channel for new orders. “Before COVID-19, we went to healthcare shows in China to promote our services and secure orders. Since the pandemic, we haven’t done that and must depend more on our staff members there.”
Salerra tries to get a leg up wherever it can. The company opened in 2016 in a Midwest state where a special licensing requirement created a huge additional cost for the business. Prikhodko started doing research. She and her partner selected South Carolina, which they found to be more business friendly. It has been a good place for them to watch in dismay as the bilateral China-US relationship has come under enormous strain.
Grateful for not failing
“I think about this problem all the time. Every year I am still open, I am grateful. If the laws in either country change, I have no business. If President Biden decides not to trade with China, we’ll have to find something else to do.”
Luckily pharmaceuticals are not on the list for trade restrictions yet. The United States may be in bigger trouble if China restricts sales of pharmaceuticals to the United States. Many components of popular drugs are made in China. Prikhodko feels at the mercy of the politicians from the Chinese side and the US side. Her customers share similar concerns. “They were really concerned when Trump was President, but somehow things got a bit easier. Now, I don’t know.”
She feels badly about the turn relations have taken. She also worries about the Chinese people who wouldn’t be able to get access to the medicines she can provide. “I love to hear stories about the women helped by these medicines, the lives saved. There is a new drug that not only shrinks the cancer, but also reduces scars and restores the skin. Chinese people do want to change their processes and improve things. We are here to help.”
Do you talk to your elected representatives about your issues with US and Chinese trade policies? “No, I am too busy being a single mom to my daughters. And I’m a member of the Greer (NC) Chamber of Commerce. It’s useful to network and be part of a community.”
She also contributes to the public good by creating jobs for locals. She has a specific fondness for young people who emigrated from Russia to the United States. Their parents don’t encourage them to go to college, she observed, and many end up cleaning houses. “If I see them serving food in restaurants around town and showing good customer service, I’ll offer them a job and train them.”
Perhaps with an image in mind of her childhood by the Black Sea and her uncompromising grandfather, she says: “I have a big heart for immigrants.”