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 Chinese healthcare mergers and acquisitions nearly tripled last year
to more than $50 billion, helped by giants like GlaxoSmithKline PLC
and Eli Lilly and Co tapping small biotech and research innovators.
The targets offer vital regulatory know-how as Beijing builds a
domestic drug industry.
For Big Pharma, acquisitions, licensing deals and joint ventures
offer a back door into a market where Beijing expects healthcare
spending to rise to $1.3 trillion by 2020. The majors need the
opening: their China growth has stalled to low single-digit pace
from over 20 percent just four years ago as branded generics have
lost their shine.
"As a China biotech (company) we have the advantage of knowing
policy, understanding the environment and being able to mobilize
resources to get things done," said Li Chen, 54, chief executive of
Hua Medicine. Hua has a deal in place to develop drugs including a
diabetes treatment licensed from Swiss giant Roche Holding AG.
While firms like Hua can help global drugmakers navigate complex
regulatory risks, speeding up approvals in treatment areas like
diabetes and cancer, they get something in return - access to what
Hua's Li calls "good assets" and in some cases potential partners to
sell their wares overseas.
For Li, a former Roche scientist, Hua's partnership deal brings the
advantages of a tie-up with a global industry leader to a company
with a staff of around just 25 people, which he founded himself in
Shanghai five years ago.
"We were looking for assets around the world so that's a really
great match - and I know this asset really well," Li said. Among his
firms peers, interest in such tie-ups is growing.
M&A BOOM
The buzz around China's healthcare industry has helped it outstrip
hotspots like India to become the most active region in Asia for
pharmaceutical tie-ups, said Wei Zheng, healthcare analyst at BMI
Research.
Chinese healthcare M&A last year surged to $54 billion from $18.8
billion the year before, according to Thomson Reuters data, not
including the value of numerous joint ventures and licensing deals.
There have already been deals worth more than $9 billion this year,
the data shows, showing demand for the assets remains robust. As
well as acquisitions, partnership deals are increasingly being
sought after, industry executives say.
"A lot of firms are coming here to tap into a cost-effective way of
doing drug development," said Mireille Gillings, chief executive of
U.S. firm HUYA Bioscience International, which has scouts around
China hunting for drug development breakthroughs.
At the same time, other small firms are keen to find overseas
partners to push their drugs overseas. HUYA has in-licensed a
Chinese immunotherapy cancer treatment that is undergoing trials in
Japan and the United States.
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LOCAL NETWORKS
Shanghai-based research firm WuXi AppTec is one company that may fit
that bill. It now employees around 11,000 people worldwide and said
this month it was setting up a joint venture with U.S.-listed Juno
Therapeutics Inc to develop innovative cancer drugs - in China.
"Honestly, if you manufacture locally, test local and file local,
that will give you a time advantage," the firm's chief executive, Ge
Li, told Reuters. "It's as simple as that."
The tilt in strategy for the majors comes as Beijing accelerates
efforts to promote a 'Made in China' drug industry.
GlaxoSmithKline's China head, Herve Gisserot, told Reuters late last
year that Beijing was putting pressure on off-patent generics,
reining in prices and trying to cut out low-quality drugs - positive
moves longer-term, but which created short-term challenges.
"The only thing for pharma is that some of the things will happen
sooner than others. Price erosion will likely be faster than the
accelerated approval of new medicines," he said.
'SEA TURTLES'
Chinese partners bring an extra dimension: The domestic start-ups
aren't shy about their government backing and political connections,
an important element to help attract funding and navigate complex
regulations.
Samantha Du, chief executive of Shanghai-based Zai Lab, which has
in-licensed cancer treatment drugs from Pfizer Inc and struck a
partnership in March with German pharmaceutical giant Boehringer
Ingelheim, said her firm had "lots of government funding".
Du, 52, like Hua Medicine's Li Chen, is a so-called "sea turtle" -
one of China's best and brightest, who has returned home after
studying and working overseas. She has served on various
government-linked committees, she said, noting this had done nothing
to harm the firm's prospects.
"Over 18 months, we've raised around $140 million and haven't even
spent the first round," she said. Her firm, founded in 2013, employs
30 staff in-house. "There's plenty of money to spend."
(Reporting by Adam Jourdan; Additional reporting by Brenda Goh in
SHANGHAI and Elaine Tan in MANILA; Editing by Kenneth Maxwell)
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