BioWorld Today Contributing Writer

Editor's note: BioWorld Today explores the Chinese biotech market in this sixth article of an occasional series.

The growth of Western diseases and the value attached by many Chinese to Western brands may provide opportunities to get a share of the China market.

"With China's increased adoption of Western lifestyles is coming an increase in many Western diseases such as cardiovascular disease, diabetes, various cancers, asthma and others," said Friedhelm Blobel, CEO of SciClone Pharmaceuticals Inc., of Foster City, Calif., which for the past decade has marketed Zadaxin (thymalfasin) in China for the treatment of hepatitis B. "This changing disease pattern is mostly true of the areas marked by urbanization and high population growth. It is clear that large opportunities exist in China for products addressing heart disease, diabetes, cancer and asthma. On the other hand, in China's rural areas, access to care is still a significant challenge and the treatment demand is for essential drugs such as antibiotics."

That said, Blobel added, "Incidence rates for diseases remain very different in China than in Western countries for many diseases. As such, careful market analysis early on is important for understanding the potential of a specific drug in China – and this includes products that are considered for niche subsectors in Western markets, but that might find a significant market in China."

The latest demonstration of the growing attraction of China's pharmaceutical market to drugmakers from around the globe will be on display in Shanghai on Oct. 12-13 when more than 400 representatives of big pharma, biotechs and related firms gather for the first BIO China International Conference. The event is organized by the Biotechnology Industry Organization (BIO), of Washington, and partner Zhangjiang Hi-Tech Park, of Shanghai, an industrial development zone focused on high value-added products and services.

China's Enormous Population

Even lower disease incidence rates in China compared to the U.S. or other Western nations can result in large numbers of patients, due to China's enormous population.

Peter Ho, co-founder and president of Beijing-based start-up BeiGene Ltd., noted that gastric, esophageal and liver cancers have an incidence rate in China that is seven to 10 times higher than in the U.S. "So there are greater priorities for developing effective drug treatments here," he said. "The number of newly diagnosed patients with lung cancer in China is four times greater than that in the U.S., reflecting the larger population here. Even breast cancer, which has a lower incidence rate in China, has three times the number of newly diagnosed patients as in the U.S., and the incidence rate is growing as China modernizes. Similarly, cardiovascular disease and diabetes are growing at alarming rates in China as dietary and other lifestyle factors move closer to that of the West."

Just as Chinese lifestyles have become more like those of the West, increasingly affluent Chinese consumers have developed a preference for drug brands from companies in the West and other regions outside China.

"Our experience with Zadaxin has taught us that there is an undeniable attraction to Western drugs that are not made in China," said SciClone CEO Blobel. "This is largely due to the perception of quality. With various product recalls related to China-manufactured goods, people in China tend to regard Western manufactured products as the highest quality. This is just as true in the pharma market as any other market. This again gets back to the value of brand in China, which plays a much more significant role for pharmaceuticals there than in Western countries. If you can establish a brand that is synonymous with quality then you will be successful in China, especially among the vast majority of individuals paying out of pocket for their therapeutics. For most of these folks, paying for a brand is a common practice."

Brand Is Key

Chinese consumers are "very brand conscious and prefer imported medicines, which are presumed of better quality and more effective," added Wenseng "Wendy" Pan, an attorney who recently left the Morgan, Lewis, Bockius firm in Philadelphia to move to the Shanghai office of O'Melveny Meyers, where she will focus on cross-border mergers and acquisitions and strategic partnership transactions in the life sciences industry.

"It is not a question where the drugs are made, but who made the drugs," Pan noted. "Drugs from multinational corporations, such as branded generics, can command a higher price even if they are made in China. The reason is simple – Chinese drug manufacturers have failed in delivering quality drugs, and they have lost consumers' trust and confidence in their products. For a Chinese company, a quick way to win consumers' trust in its products is to sell products accepted by consumers as 'quality products' through partnering up with or acquiring established Western companies."

Pan predicted that because tumultuous U.S. and European stock markets have depressed the valuation of Western pharmaceutical companies, it a good time for Chinese companies to acquire assets such as manufacturing technology and branded generics.

"There will be more cross-border M&As as well as strategic partnership transactions," she said.

Building Relationships

Alan Eisenberg, BIO's executive vice president of emerging companies and business development, told BioWorld Today that BIO hopes the conference will "strengthen relationships with members of the Chinese biotech community and government in order to help strengthen and support the growth of the biotechnology industry in China." The conference will bring together leaders from biotech and pharma for networking and partnering discussions, he said.

By the end of September, the conference had signed up more than 400 attendees and 260 participating companies companies sending speakers or representatives pursuing partnering meetings. BIO considers it a good turnout for an inaugural event, but adds that the organization's global Business Forum during its June International Convention in Washington attracted 2,410 participating companies.

Of the companies in Shanghai, about 75 are Chinese. The other roughly 185 are non-Chinese Asian companies – based mainly in Japan and South Korea – European and North American companies.

They're drawn by rapidly emerging business opportunities in a country which already has the world's largest population – more than 1.3 billion people, compared to the U.S.'s third-largest 313 million – the world's second-largest economy – trailing only the U.S., according to the World Bank and International Monetary Fund – and what is generally considered the world's third-largest pharmaceutical market – about $50 million compared to the U.S.'s leading 2011 estimated sales of between $320 to $330 billion, according to market research firm IMS Health Inc., of Danbury, Conn.

But while IMS projected U.S. market growth of between 3 percent and 5 percent in 2011, China was expected to grow between 25 percent and 27 percent, a pace at which it would pass Japan and become the world's second-largest pharmaceutical market by 2016. Moreover, China's pharmaceutical market has routinely seen annual growth rates of more than 20 percent, as it has moved from ninth largest in the world in 2003 to sixth in 2009 to third today.

The growth is being fueled by several factors: expectations by an expanding middle class for better health care; an expansion of health insurance by the Chinese government to cover an estimated 90 percent of the population; government financial support of biotechnology and other high value-added pharmaceutical-related industries; and, the growth of chronic diseases such as lung cancer, stroke, heart disease and diabetes, as the result of an aging population and increasingly Western lifestyles.