China’s biotech landscape

Mar 08, 2019
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resized yin.jpgSince coming to China in 2002, I have witnessed incredible growth within China’s biotechnology industry. The ecosystem has emerged from a collection of companies with mixed innovator/service business models and poor communication skills to a stratified, differentiated landscape with an international impact. Some of the players have since gone public. Others have raised VC rounds internationally. Deals between Chinese companies and global pharmaceutical and biotechnology companies are common. Many small private companies are thriving. China biotech has arrived.

Despite the significant advances and media attention, problems continue to plague the industry. Though China boasts a robust services segment, there are still relatively few true innovators. Most managers have little experience with multiple parts of the discovery and development value chain. IP, tax, ownership and other issues often come to the fore when due diligence is conducted by partners. Conference providers are often disappointed with the actual number of biotech companies that are truly international in orientation. Many incentives provided by the Chinese government have sustained and encouraged companies that would not be otherwise economically viable. The large sums announced by multinational pharma for China R&D investment sometime seem divorced from the reality of their actions. Still, China biotech has grown unabated.

In my opinion, China’s rise in biotechnology was predictable, if not inevitable. China has the academic infrastructure in place to create the supply of talent to the industry and China has the cost base to create competitive advantage in commodity-like biotech services. Returnees from the US, EU, and Japan have brought innovation, international perspective and management practice back to China. China’s national and regional governments have supported the industry, helping home-grown biotechnology companies and foreign companies desiring to make China a base.

China’s future looks bright for biotech services, and in the long run, for Chinese innovation. Multinationals now believe they must be in China for R&D or be left behind. China’s government has not wavered in its support for the fledgling industry. And despite wage inflation and a tighter labor market, China talent remains at a discount to developed countries. With such fundamental drivers in place, China’s future in biotech seems secure. Hold on tight for the next 9 years!

The China market for products

Aside from China’s biotechnology companies, one of the most significant developments since 2002 for the global biotechnology industry has been the staggering growth of China as a pharmaceutical market. When I arrived in China, the domestic market was a backwater for most of the multinational pharmaceutical industry. Today, multinationals are obsessed with growth in China and have been willing to invest significantly to grow market share. In the past, big pharma waited years before bringing products to China from developed markets. Now, not only do multinationals bring products as quickly as possible to China, but many have created business development teams in the country that focus on in-licensing products for the China market alone. This development has had an impact on biotechnology companies in China and biotechnology companies globally – they must now understand the market opportunity for their drug candidates in China as well as the US, Europe and Japan.

Helping biotechnology and pharmaceutical companies assess the China market for their candidates and do deals has become a focus for my firm. The process for valuing a molecule for China is different than for other markets. Patent protection is important, but more important are pricing events, tender events, and reimbursement on a national and provincial level. The product’s scientific merit may have an impact, but understanding the incentives within China’s healthcare system and positioning a product within that system is more important. Without an attractive price, incentives for market access and appropriate promotion, a product – no matter how innovative – will fail in China.

Such considerations help biotechnology companies understand the potential market value for their candidates in China. Some are pleased with the outcome of these studies – and some learn to reposition their products for the China market. In any case, when biotechnology companies are negotiating China or global rights for their candidates, they need China information in order to be in a position of strength. Without it, they are in a position of weakness. They may choose the wrong partners. And they fail their fiduciary duties to their investors. With the right information and the right positioning, even small biotechnology companies can cut attractive deals for China rights and enhance the global value of their candidates.

Final thoughts

China is an essential player in the international market for biotech services, and increasingly for innovation. It will continue to grow and thrive and will overcome its stumbling blocks. And for every biotechnology and pharmaceutical company, China has become a market that must be assessed early in development.

Matthew Chervenak

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