Editor's note: BioWorld Today explores the Chinese biotech market in this fourth of an occasional series of articles. See BioWorld Today, May 18, 2011, May 24, 2011, and June 10, 2011, for the first three reports.
What does a Western biotech need to do to get a piece of the rapidly growing Chinese market?
"If a Western biotech company wants to sell its products into the Chinese market, it can either do it on its own or find a partner to do it together," said Wenseng "Wendy" Pan, an attorney for Morgan, Lewis, Bockius in Philadelphia, whose practice includes advising multinational pharmaceutical companies and biotech start-ups.
"Usually a biotech has limited financial resources and limited operational bandwidth, so building up development and commercial operations in China from scratch is not a wise or feasible choice. Collaborating with a partner is almost a necessity."
Friedhelm Blobel, CEO of SciClone Pharmaceuticals Inc., of Foster City, Calif., a self-described "China-centric specialty pharmaceutical company," which for the past decade has marketed Zadaxin (thymalfasin) in China for the treatment of hepatitis B, agreed that partnering is the way to go for most Western biotechs.
Earlier this year SciClone broadened its China footprint beyond Zadaxin when it acquired privately held specialty pharmaceutical company NovaMed Pharmaceuticals Inc., of Shanghai, for $61.8 million in up-front cash and stock and a potential $43 million in earnouts for the 2011 and 2012 fiscal years. The NovaMed deal gave SciClone a portfolio of 18 products and a 450-person China sales organization to add to its own 200-person China marketing team for Zadaxin. (See BioWorld Today, April 20, 2011.)
"If a company has one or two products that it is seeking to bring to China, then that company should seek out a partner," said Blobel. "On the other hand, a larger biotech player with a steady stream of products expected over an extended period could consider building their own business focused on China. However, this latter scenario will typically be more the exception rather than the rule."
Why partner? For some, the reasons are as simple as gaining a critical understanding of Chinese culture and the lay of the land.
The Chinese Way
"To be a winner, you need to do things the Chinese way and understand Chinese culture," explained Jinzi Wu, CEO of biotech start-up Ascletis Inc., which has headquarters in Hangzhou and a U.S. facility in Research Triangle Park, N.C. "The Chinese market is very different from the Western market. Western-style sales techniques do not work in China. For example, direct sales to Chinese hospitals are critical."
Ascletis focuses on oncology (liver, lung and stomach cancers), and infectious diseases (drug-resistant tuberculosis) for which there are major unmet medical needs in China. In April the company announced an attention-getting $100 million committed Series A funding, with the first $50 million tranche expected to support it for about five years. Hangzhou Binjiang Investment Holding Co. Ltd., a holding company of Chinese real estate billionaire and Wu's long-time friend Jinxing Qi, led the round, with other investments from entrepreneurs in China, the U.S. and other countries, and from Wu. (See BioWorld Today, April 7, 2011.)
Added Peter Ho, co-founder and president of Beijing-based start-up BeiGene Ltd., "Partnership is always important to a biotech regardless of where they are working, because a biotech generally needs to be selective in what it decides to focus on internally, especially if it does not have a physical footprint in China. Understanding the local conditions, regulatory requirements, and practices is critical, and local partnership is an expedient way to gain that when the Western biotech lives a half a world away."
BeiGene in May entered an agreement with Merck & Co. Inc., which will provide unspecified debt and equity financing to help support BeiGene's preclinical discovery, cancer biomarker research and clinical-stage oncology candidate development. BeiGene's strategy is to discover and develop new oncology drugs that encompass small molecules and biologics through its own laboratories and by in-licensing investigational therapeutics from pharmaceutical partners. (See BioWorld Today, May 2, 2011.)
SciClone's Blobel noted that the case for securing an appropriate partnership is supported not only by the fact that the pharma industry in China is so unique, but also because it is evolving so rapidly.
Consulting firm IMS Health Inc. has reported that, with a growth rate of more than 20 percent during the past several years, China rose from the world's ninth-largest pharmaceutical market in 2007 to second largest in 2011, trailing only the U.S. IMS anticipates China will have the largest pharmaceutical market by 2020. Global financial services company Citi has projected that the Chinese pharmaceutical market will grow from about $40 billion annually today to $100 billion in 2015 and $200 billion by 2020 as the result of an aging population, increases in chronic diseases, and expanding health care coverage.
"Experience in, and knowledge of, this market provides substantial advantages for companies," he said. "It is essential that a company understand how health care is provided, the differences between the rural and urban approaches to health care, the unique regulatory structure, the drug purchasing decision-making process for physicians and patients alike, and how the reimbursement model impacts the sale and growth of specific drugs."
Without this familiarity with the intricacies of the China market, "a company will spend an inordinate amount of time, money and resources getting up to speed and invariably making some significant mistakes, he added. "This in-depth knowledge, along with the appropriate relationships, can only be built over several years 'on the ground' in China. If a Western biotech itself doesn't have this expertise, then it is essential that they have strong partners that can offer this knowledge."
But Blobel pointed out that having a partner with expertise in the China market does not necessarily mean having a partner based in China. There are companies based outside of China – such as his company, SciClone – that have been successful building their businesses in China.
(Next in the series: Choosing a Partner in China.)