At the recent ChinaBio® Partnering Forum held in Shanghai, the Keynote Panel discussed significant issues regarding doing partnering deals in China. The Panel was moderated by Gerald Chan, DSc, of Morningside Group, a long-standing member of the China venture capital and private equity worlds, whose investments have included over 30 biopharmas. The Panel included three China-based executives from big pharma and one executive from a highly innovative China pharmaceutical firm.

Moderator: Gerald Chan, DSc, Morningside Group

Panelists:
Liam Condon, MBA, Managing Director, Bayer HealthCare China
Samantha Du, PhD, CEO Hutchison MediPharma
Alex Fowkes, JD, Executive Director, Head of R&D Business Development Asia, Pfizer Global Research and Development
Mervyn J. Turner, PhD, Chief Strategy Officer, Merck & Co., Inc.

Dr. Chan began the session by giving some context to the current state of China generally and biopharma in particular. “In China, time is compressed,” he said. “It’s been only three decades since economic reform was instituted, and great change has taken place in that time. It’s incredible for those of us who knew China 30 years ago to see big pharma coming here.”

Biotech is important to China, Chan pointed out, because China understands the negative implications of being the world’s factory floor. Although the process of building China’s pharmaceutical industry started with outsourcing, the rationalization of worldwide pharmaceutical industry is giving a major role to China, a role that is based not simply on outsourcing but innovation, he added.

Thus, the question of innovation – just how innovative is China’s biomedical science? – is central to the issue of partnering. To be a top tier partner in the global market, China must bring innovative technologies to bear.

Innovation

“China will be a locus of innovation; we want to be part of that,” said Mervyn J. Turner, PhD, Chief Strategy Officer of Merck. “Science is an international language; you can collaborate with anyone around the world, which is an empowering idea. China is an exciting place to be,” he concluded.

For Pfizer, China offers a new way of doing things. “It’s a clean slate; we don’t have to repeat our model that exists in the rest of the world,” said Alex Fowkes, JD, Head of R&D Business Development Asia, Pfizer Global Research and Development. “Outside of R&D, we are looking for opportunities to license products that have global impact as well as a local impact,” he continued.

Bayer’s strategy is now transitioning to innovation, according to Liam Condon, MBA, Managing Director, Bayer HealthCare China. “We used to bring innovative products to China; now Bayer wants innovation to be introduced worldwide at same time. Last week, we introduced a global blockbuster drug [the anticoagulant Xarelto] in China first; the US launch will follow.” (See Bayer Launches Novel Anti-Clotting Drug in China.)

“The Silicon Valley biotech model, a piecemeal or one-shot approach, is broken,” said Samantha Du, PhD, CEO of Hutchison MediPharma, who represented China’s home-grown innovation-based drug companies on the panel. Du said she believes that a more integrated approach to drug development can be built in China based on the concentration of talented scientists coupled with the support of government policies and market opportunities.

How Good Is China Science?

At this point in the discussion, Chan adopted the role of the devil’s advocate, breaking the feel-good atmosphere by posing a series of question not often asked at China biopharma events: Is China science really good enough to be attractive to global pharma?

“The worldwide pharma ecosystem is in trouble,” responded Dr. Turner of Merck. “The lower costs and large markets of China are not unimportant to big pharma.” In an explicit reference to the keynote’s theme of partnership, he declared, “We need to explore different business models because cost sharing is valuable.”

In a stirring defense of China science, Turner further declared that China outsourcers, such as WuXi PharmaTech, a Merck partner, provide chemistry services that are “fabulous.” In terms of innovation, “Biotech is most successful when there is a collaboration between academics and venture capital,” he said. “We need more innovation from academics [in China].” China’s government has recognized the importance of contributions from academia, Turner continued, and is significantly increasing its financial support of academic medicine.

“But Merck is known as ‘not invented here,’” responded Dr. Chan, testing Merck’s commitment to collaborative drug development.

“That was before I was in this job,” replied Turner, just as quickly.

“Are you running into internal resistance?” asked Chan, questioning the commitment of Merck as a company to external collaborations.

“We have trouble keeping a lid on it. It is such an obvious message,” said Turner. “We understand only 1% of the bio box; we should try to understand the remaining 99%,” he added, making the case for involving as many brains as possible.

Pfizer’s Fowkes admitted, “There is some truth to the point that China science lacks some things, but are finding things of interest here.” Pfizer clearly believes in the vitality of China science. The company sponsored the Innovation Showcase at the ChinaBio® Partnering Forum, which had over 50 posters from 18 institutes and universities on display.

Condon made the point that Bayer doesn’t feel it can wait until the best science manifests itself in China. “The company has to be in the country now so as to participate when China’s science comes fully of age,” he said

A Business Model that Encourages Partnership

Chan then asked the panelists about their business models, implying that a virtual, innovative model would sway big pharma toward partnerships. On the other hand, a fully staffed in-house R&D center would influence a company away from collaborations: “GlaxoSmithKline wants to do all of its neuroscience in China for the rest of the world, a highly integrated approach,” he said. “Are you going to be integrated or opportunistic?”

Turner pointed out that Merck doesn’t have an R&D facility in China. “The trend is disaggregation. Infrastructure is expensive and it isn’t producing currently. Pharmas need to think a lot before adding bricks and mortars. Partnership is a viable approach,” he said.

Pfizer has taken a virtual approach in China, using both CROs and partnerships with academic centers, said Fowkes. “We are not fully integrated in drug discovery, but we want fully integrated development.”

According to Condon, Bayer didn’t need a China R&D center to be successful; it was already successful in China before the company built an R&D center there. “We are looking five to ten years down the line, and we need to be investing now, building a network to be successful in the future. We are seeking partnerships for drug discovery, but we are building up facilities to do all of the development in China,” he declared.

Looking back at history, Hutchison’s Du reminded the audience that all of big pharma built R&D centers in Japan in the 1980s when it was the hot spot for drug research. However, “Very few molecules came out of those facilities.” Continuing her critique of the big pharma R&D centers, she said, “If you do not have experience in China, you should take advantage of people who know how to operate in China. You lose the benefits of the local culture if you establish your own R&D facilities, which can become just another center in a worldwide network without the positive features of the local culture.”

Competition for Talent

Big pharma R&D centers may have another negative effect, according to Chan. Their huge staffing requirements put pressure on the supply of qualified employees. “In Zhangjiang [Hi-Tech Park in Shanghai, a leading center for the biopharma industry in China], there is enormous competition for talent; everybody is competing for the same pool, causing wage inflation,” he declared.

“Gerald is outdated,” responded Du, who noted that her long-standing friendship with Chan allowed her to say this to him. “That was last year. Few big pharmas have been hiring this year.” The change took the pressure off the demand side, and in addition, she noted the worldwide financial crisis is pushing a larger number of returnees to move back to China, increasing the supply of talent.

Reiterating the theme of change, Du said, “In China, you can’t make a projection from last year about the future. You have to keep current.”

“Competition here at Shanghai’s Zhangjiang [Hi-Tech] Park is why Bayer went to Beijing to build its center,” declared Condon. He made the further point that the investment of about $100 million toward the company’s facilities in Beijing gave Bayer significant presence with the local government, but that amount of money might not merit the same level of attention in Shanghai.

Government Support

In response to a question from the audience, Dr. Chan declared that China’s science is influenced by government priorities, because the government provides most of the funding. “They [the government] were short-sighted a few years ago, focusing on late stage research, hoping to get products to market soon.” Their model, he said, was the internet, but biotech is different from internet. New government programs show the government’s interest in promoting biotech through long-term research.

For Dr. Turner of Merck, China’s well-trained work force, spirit of entrepreneurship and government support for drug research all combine to make China an important place for Merck’s research efforts. “We do a full spectrum of activity in China because we see opportunities across the spectrum,” he said. In an explicit endorsement of partnerships, he continued, “We think we can help, and much of what we do is building relationships.”

Disclosure: none.