Nuance Biotech, a Shanghai based startup, plans to in-license China rights to development-stage drug candidates -- a fairly common model. But Nuance's version of the model has a differentiating twist. As Mark Lotter, the company's founder and CEO told ChinaBio® Today in an exclusive interview, Nuance expects to develop the drugs in both China and South Africa.

South Africa, Lotter explains, is like China in that both countries have well-developed scientific infrastructures, plus they have access to many treatment-naive patients while also offering a lower cost base from which to deliver world-class clinical development. Unlike China, South Africa also has significant populations of Caucasians, Africans and Indians. This, combined with the data produced in China, will allow Nuance to produce data for filing in both emerging and developed markets, notably Europe and the US.

Nuance will make the drug's data available to its partner and if the data is used to gain approvals outside of China and South Africa, the company will expect royalties on sales, a residual income stream.

Lotter knows South Africa. He was born there and spent a large part of his 20+ years in pharma at a senior level (GM at Astra and CEO of Aspen). He moved to China in 2002 from the UK, initially working for AstraZeneca where he built a pioneering commercialization model that went broader and deeper into China markets. The model gave AZ a strong position in China's prescription drug market, says Lotter, which it retains.

In 2005, Lotter struck out for himself, establishing NovaMed, a venture-backed China-based specialty pharma that secured a large portfolio of products along with a future pipeline for the company. The company was sold to SciClone in April 2011 with Lotter staying on until the end of 2012.

As a company, Nuance is now emerging from stealth mode, having secured a leading team and its seed financing. It will start a Series A campaign soon. To make the company and its model better known, Lotter will participate in the upcoming ChinaBio® Partnership Forum, scheduled to take place in Shanghai in April. "The meeting offers a unique opportunity to network with potential partners and investors," Lotter declared. "It will also serve as a good platform to communicate recent developments in Nuance."

Nuance's Business Plan

Nuance builds on Lotter's experience in China pharma. "Our business model includes short, medium and long-term programs," Lotter said. "Over the short term, we will look at partnering with MNCs and leading domestic players on scalable and profitable commercialization projects, building a commercial entity that addresses China's many different market segments and growth areas."

"Medium-term projects," he continued, "will in-license molecules that aren't available in China, but are approved elsewhere." Lotter believes that, given Nuance's experience with China's regulation and development sectors, the company will obtain market approvals quickly and cost-efficiently. Because Nuance will select products that qualify for independent pricing in high value areas, the company expects its assets will hold significant value in China.

For the longer term prospects, Nuance hopes to license China rights to development stage assets. This is a popular theme currently, with companies like Hua, BeiGene, Zia Labs and others pursuing similar models. Because of its emphasis on South African development, Nuance has defined its own niche in this sector. The advantage to Nuance is that the paired income streams -- China and South Africa -- create a more viable, diversified economic model.

Nuance believes its three-tiered model gives the company "a sustainable model" for its China operations. “The development stage projects involve scientific risk, but will also represent significant commercial opportunity," said Lotter. To mitigate the risk, Nuance will manage the steps of its development program through rigorous drug target selection, due diligence and patient diversity in China and South Africa.  

According to Lotter, "The medium-term assets represent little/no scientific risk except for the timing regulatory challenge." Nuance plans to leverage local development so that navigating the regulatory cycle is done in the most timely and cost-efficient manner.

Over the short-term, Nuance expects to license assets from MNC and domestic pharmas, and it will also seek to consolidate a number of regional domestic Chinese players.

Lotter admits that the competition for development stage assets in China has increased significantly over the past two to three years. Howeover, Nuance believes its novel approach will give it an advantage over the competition. The company will target MNCs that are rationalizing their development portfolios, biotech companies advancing an asset into the next stage of development and research institutions seeking to take novel science into the clinic.

In addition to internationally developed assets, Nuance expects a core component of its overall strategy will involve working with domestic China assets. It plans to offer a development platform to test the science behind these assets in China and South Africa, allowing the data to be filed beyond the Chinese market. To accomplish its goals, Nuance has secured access to a development team that it considers world-class, consisting of international and China professionals with experience and track records in global drug development.

The risk situation is different for short and medium-term projects, says Lotter. "The model for these assets is very opportunistic. There are still multiple assets that as yet have not entered the Chinese market in therapy areas that are currently key within the China market," he declared.

Funding and Partnering

Nuance's three-tiered development model carries over to its funding model as well: investors can choose to invest exclusively in any one of the three levels of development, or they can invest in the holding company itself. "We feel that the tiered model will allow for a more definitive and targeted approach for different investors," explained Lotter. The model provides alternatives for investors who don't want to wait for payoffs during the years-long drug development cycle.

For Lotter, the key to selecting a good partner for a China venture is finding a company with an understanding of the China market and the opportunities that are likely to present themselves as the market evolves. He said that once a partner is selected, there are more variables in China that need to be considered, which includes the collaboration model though he considers that a minor consideration.

Although Nuance is a recent startup, the early work is well underway. Lotter is proud of its unique base of seed funding and the experienced teams selected to represent the company at board and advisory board level. It has also recruited a China head of commercial development and clinical operations. On the business development side, Nuance is already conducting "advanced discussions" with potential partners on all three levels of development and remains confident in its ability to deliver on the model.

Lotter says the company's team fully appreciates the challenges that lie ahead. “Even though we believe we have a unique model which is closely aligned to the opportunities China is likely to deliver, we understand clearly that the ability to execute against the strategy is what is likely to deliver the success going forward,” said Lotter.

In sum, with a novel strategy, adequate funding and a strong and experienced team, Nuance believes it has the three core ingredients it needs to create a leading specialty based player in China's pharmaceutical market.

Disclosure: none.