Company Will Source Purchases from China

AstraZeneca (AZN) is already a big player in China biopharma, with both manufacturing and R&D operations located there. Late last year, it signed an agreement with Cubist Pharmaceuticals (CBST) to distribute Cubicin, a novel antibiotic of the lipopeptide class, in China. That initiative underscores that AstraZeneca is interested in China as a market for pharmaceuticals, not just a source of inexpensive labor. Along the same lines, the company notes that Iressa, its once-promising cancer drug, seems to be more effective in Asian patients than it is in Caucasians. The company has the largest sales in China of any international pharma, surpassing Pfizer. And just to cover another base, AstraZeneca has agreed to collaborate with Wuxi PharmaTech in a $14 million partnership for compound collections synthesis.

In addition to this activity, AstraZeneca last week announced one more initiative for AstraZeneca China: the company will open a sourcing center in China to source APIs (active pharmaceutical ingredients) there, with the goal of placing orders for $100 million of API by 2010. Eventually, it expects 90% of its API to come from China.

According to AstraZeneca officials, the change comes because of the increased protection for Intellectual Property in China and the high quality of manufacturing there. The move also represents AstraZeneca's vote of confidence in the safety of Chinese pharmaceutical ingredients, at a time when tensions are high between the US and China over food and drug exporting between the two countries.

The change in strategy means that, while AstraZeneca once operated under the slogan of In China for China, it would now operate under the banner In China for Global.

David N. Smith, global executive operations vice president for AstraZeneca, said the company would seek cost savings of 10% within three years in the $9 billion it spends each year to purchase goods. AstraZeneca will establish a sourcing center in Shanghai to accomplish this objective, a facility that will purchase APIs, formulated products, R & D services, chemicals and laboratory instruments. AstraZeneca has established a similar center in Bangalore, India.

At present, AstraZeneca purchases $25 million of goods in China. It will seek to buy that much in the second half of 2007 and increase purchases to the $100 million level in 2010.

Throughout the world, AstraZeneca presently makes 85% of its own APIs, outsourcing the rest. In a major change, the company plans to cease manufacturing most of its own APIs.

In other news from the world of Chinese biopharma, Beijing Double-Crane, which trades on the Shanghai exchange, announced a secondary offering that restructured its relationship with its corporate parent, Beijing Pharmaceutical Company (see story). NYSE-listed American Oriental Bioengineering (AOB) also floated a secondary issue of stock; this one was reduced in size after a Barron's article criticized the company (see story).

In inter-company deals, Microbix Biosciences (MBX) licensed its single-sex semen cattle breeding product to the Animal Fine Breeding Station of Hebei Province, which will have exclusive rights to distribute the technology in China (see story). Meanwhile, Swiss agribusiness giant Syngenta will collaborate with the Institute of Genetics and Development Biology (IGDB) of Beijing to develop drought-resistant crops (see story).

The government of China announced plans to bring traditional Chinese medicine into the mainstream, positioning them as medications that can be administered along with modern drugs (see story). And the government also announced ambitious goals for its bioindustry, as one of many initiatives to expand economic growth (see story). Finally, the municipality of Suzhou unveiled plans for a new healthcare park that will help the government achieve those goals (see story).

Disclosure: none.