Trade Wars Go Both Ways

First, the jokes. While the US is upset with China because of a raft of food and drug safety problems in exported products, the Chinese must accept another sort of tainted products from the US those pesky, disappointing financial exports. Between the sub-prime loans that found their way into the Bank of China and the top-of-the-market investment in Blackstone, China may need a new (electronic) wall to keep Wall Street at bay. Or, perhaps the unifying experience common to all capitalists is grumbling about your broker.

Although the Chinese were not publicly complaining about American financial exports, the country did announce it had returned a shipment of pacemakers from St. Jude Medical (STJ) (see story) because they did not meet standards. The move put the US on notice that a public relations war could be starting, a war that would make life difficult for both sides.

Last week, Covance (CVD) reported it was scheduled to open its Shanghai laboratory, a 13,000 square feet facility located in the Zhangjiang High-Tech Park in Shanghai's Pudong District. Previously, Covance operated in China through an arrangement with the Huashan Hospital Center of Laboratory Medicine. The new lab, which is the fifth such facility globally for the company, will be fully operational before the end of the year. It replicates exactly the other labs that Covance has built around the world.

Interestingly, Covance said its increased presence in China was due to the higher level of pharmaceutical activity there. Usually, companies invest in China because of some combination of low costs or interest in the country's growing market for drugs. Because China is expected to be the fifth largest market in the world by 2010 just three years away Covance felt the need to be a part of this vital area of pharmaceutical enterprise, to be close to the action. Covance is a $4.5 billion contract research organization with revenues of $1.5 billion annually.

During the last week, we noted that big pharma was choosing to build new facilities in China rather than India (see story). Then Novartis (NVS), which just last year announced its intention to make major investments in both countries, reneged on its commitment to India (see story). The cause underlying both stories was poor patent protection in India. For Novartis, the decision was made after the company lost a patent infringement suit against a generic version of leukemia drug Gleevec.

Also in the news last week, Beijing Med-Pharm (BJGP) raised $31 million that will allow the company to continue its acquisitive ways (see story), China Shenghuo (KUN) reported much improved Q2 results (see story), Optimer Pharma (OPTR) entered talks with C&O Pharma (of Taiwan, Hong Kong and China) to discuss future collaborations (see story), and China decided to allow its citizens the right to invest in Hong Kong-listed stocks (see story). The change may have the effect of making Hong Kong a more-preferred exchange for biomedical enterprises that are planning their IPOs.

Disclosure: none.