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"Pharma in China Being Held to Higher Standard, Says Greg Scott, ChinaBio"
Want Success in China? Find an experienced Chinese Partner
On May 29-30, the ChinaBio® Partnering Forum 2013 will be held in Beijing. With the event less than one month away, EBD interviewed ChinaBio’s CEO, Greg Scott, asking him about ChinaBio’s consulting services for western pharmas that want to explore China’s opportunities. Scott pointed out that doing business in China is different than in the West – in sometimes unexpected ways. To find the best China partner, Scott says to use a consultant with extensive China knowledge and a viable, realistic plan.
The interview is also available on EBD’s Partnering News website (see site), along with other articles that explore China partnerships.
ChinaBio® LLC is known for the more than 30 partnering, investment and leadership conferences it hosts in China but, through its consultancy, it is also a leading source of market intelligence for the China life science industry.
“We focus on two key areas,” says Greg Scott, president. “The first concentrates on partnering relationships, identifying companies for potential partnering opportunities and negotiating partnering contracts. The other specialty is market entry analysis and market research.”
Have a Chinese Partner
“In China, unless you have deep resources, it is difficult to come and do everything yourself,” Scott explains. “The market is fragmented, distribution is complex, and drug approval and pricing are complicated. It may take longer than in the West to bring a product to market, and business is conducted differently,” he emphasizes.
It’s wise to navigate those differences with an experienced Chinese partner. “The easiest approach is to partner with a company that already has a pharmaceutical product in the market you wish to enter, thus leveraging their success. There are more than 4,500 pharmaceutical companies in China,” he points out. ChinaBio has narrowed that list to about 300 primary partnering targets. These are larger, well-established Chinese pharma that understand that signing an agreement is not a starting point for negotiations. Nearly half have at least one Western drug on the market in China. Many have other levels of experience with the West, such as senior leaders who have worked closely with Western companies abroad or in China. Some are early stage companies founded by Westerners or returnees. All have access to a fair amount of capital.
Hua Medicine, for example, raised $50 million in venture capital and in-licensed a lead molecule from Roche. BeiGene, based in Beijing and founded by a Westerner as his second Chinese company, is making oncology drugs in China for China, and also for the rest of the world, Scott points out. Luqa Pharmaceuticals takes another approach. It identifies products that were poorly marketed in China and remarkets them. “They do development, but not research. They are taking compounds through the clinic and getting approval, and had their first product on the market in only two years,” Scott says.
One of the most common mistakes Western companies make is being too eager to work with Chinese companies, Scott says. “Companies often contact us after launching discussions with Chinese companies that halted. Sometimes deals were signed, but nothing happened afterward, or the company wasn’t what it said it was. Most reputable companies don’t need to have a significant outreach effort, so, if you are contacted by an over-zealous company, be skeptical.
“Another caveat is to beware the China expert. For many, the only thing necessary to consider oneself an expert is fluency in Chinese. As a case in point, I met with a company putting together a deal. The China expert was an administrative person who had never negotiated complex partnering deals.”
Although partnerships in China may take the same 9 to 12 months as in the West from the point of introduction to the point at which a deal is signed, “The path is more challenging and more winding,” Scott says.
The first point of contention is that Chinese companies typically aren’t willing to pay upfronts and milestones – only royalties. The West, however, wants something for their efforts, particularly given the size of the potential market.
Responses also tend to be slower than in the West. At ChinaBio, “We try to run a competitive, time-driven process to move negotiations along,” Scott says. “It can be difficult to get responses from Chinese companies. These companies often are examining 10 to 20 opportunities at once. For big pharma, that’s not a lot. For companies without big business development groups, it is substantial and they must prioritize.”
As a whole, Chinese businesses are risk averse, looking more favorably at products already on Western markets than compounds in even late stage development. “They want to get to the market quickly,” Scott stresses.
Part of the reason is based on China’s drug approval process. Basically, for a Western drug to be approved in China, it must be approved elsewhere or, alternatively, go through early stage (preclinical) testing in China. There is one exception, he explains. “The China Food and Drug Administration (renamed in March from the State Food and Drug Administration) doesn’t accept data from international trials unless the product is already in Phase III trials or approved. Therefore, he explains, products entering Phase III trials outside of China can enter Phase III trials in China, but those in Phase II or earlier stages of development are treated by Chinese regulators as if they were preclinical compounds. Therefore, there is strong incentive to look at products in Phase III development or already approved in the West.
The speed of change within China makes accurate market research invaluable. “Research published 6 to 12 months ago was developed 6 to 12 months before that, and, given the pace of change here, is the equivalent of 5 year-old data in the U.S.”
Recent trends indicate the size of deals is increasing steadily. Therefore, “Be aware of the most recent comps, the types of deals that are being made and their pricing. This varies province by province.” Major growth is coming now from second tier cities. Those companies focusing on Beijing, Shanghai and Guangzhou are missing the higher growth opportunities,” Scott says.
The co-development deals that are becoming popular in the West are just beginning in China. “We’re not seeing many true co-development or co-marketing deals yet, but they are on the increase. During the past five years, 38% of the pharmaceutical deals in China were for licensing. Co-development and broad collaboration represented about 23% of the deals,” Scott says.
Intellectual property protection is always an issue of interest in China. IP protection has improved dramatically, with Chinese courts acting to protect Western patents. Pfizer’s Viagra is a case in point. “China’s Supreme Court understood that if it didn’t support Pfizer’s intellectual property, Pfizer it would likely halt its R&D activities in China.” Novartis recently did just that in India after the recent Gleevec® decision, Scott observes. “Big pharma has committed significant funds to conduct R&D in China. They wouldn’t do it if they didn’t believe their IP would be protected.”
The Chinese government is committed to growing a thriving life sciences industry. “We identified 162 government programs that fund drug development in China,” Scott says. Many of these require matching funds or other levels of investment. The country also has “an amazing talent base that has evolved rapidly during the past five years.” Citing government statistics, Scott say that 1 million Chinese who left China to be educated in the West have returned since 1978. Of those, 700,000 returned in the past 5 years, and 200,000 of those were in life sciences industry. “They are changing the landscape of drug development in China.”
ChinaBio, with a bi-lingual staff and many returnees, is well-poised to help companies take advantage of this constantly-evolving landscape. “Last year, in conjunction with our ChinaBio Partnering Forum we started a Partnering Boot Camp to teach anyone – but especially Chinese executives and entrepreneurs – how to best present themselves to Western companies and establish a partnering relationship,” Scott says. The half-day seminar includes sessions on IP, corporate structure, deal structures, and what multinationals expect from Chinese partners in terms of presentations and deals.
ChinaBio Partnering Forum is one of the best opportunities to meet the largest, most successful pharmaceutical companies in China. Last year’s conference brought together 719 attendees and 432 companies from 23 countries. Partnering activities at the 2012 conference increased 40 percent from the previous year, with more than 1,100 one-on-one meetings. “The success of our attendees differentiates us more than any other factor,” Scott adds.